When taxes are considered, the effective costs are affected by interest paid and the amortization of points on the loan. This analysis will require you to compare only before-tax costs. Bloomberg.com provides a mortgage calculator that allows you to compare the effective costs on alternative mortgages. You are considering three alternatives for a $250,000 mortgage. Assume that the mortgage will start in December, 2002.
If the lease were to be capitalized, what should be the depreciation life? 3. Suppose that Wallace Company had structured the lease to: 1) require an appraisal of the property value at the end of the lease term and 2) allow LeMay Company to purchase the land and building at a price equal to the appraised value. How, if at all, would this change your answer to questions 1 and 2? Explain Problem 2: Sale-Leaseback Sangamon signs a sale-leaseback with a buyer, Bismark.
q. Lease item purchase cost x lessee’s incremental borrowing cost / 12 r. First month rent payment - capitalised lease obligation s. PV of lease item cost / term of lease. t. Lease item rent expense x lessee’s incremental borrowing cost x 12 7. How does the lessee impute the
Use the cost information Jennifer has assembled to construct a forecast of cost of goods sold and operating expenses for 2004 through 2009. Assume first that the Bernoulli will be introduced, with its new cost structure, one year from now, and then calculate a cost forecast assuming that the $18 million is not provided for development of the new product. 3. Using the information developed for Questions 1 and 2, develop a discounted cash flow analysis for the Bernoulli division for 2004 through 2009. Working's board has asked for net present value and internal rate of the return when making decisions in the past.
An example of a long-term liability would be that of a bond and a mortgage. (b) What is a bond? Bonds are an obligation repays a principal amount at a future date, but pay interest on an annual basis. 8. Contrast these types of bonds: (a) Secured and unsecured.
The junior accountant interpreted the lease as an operating lease based on the fact that the equipment reverts to the lessor at the end of the lease. However, in this case, all risks and rewards of ownership are substantially transferred to the lessee. 2. IAS 17-paragraph 10 states that classifying a finance lease depends on the substance of the transaction rather than the form of the contract by meeting individually or in combination situations (a) through (e). Of these situations, two have been met: (c) the lease term is for the major part of the economic life of the asset even if title is not transferred and (d) at the lease inception, the present value of the minimum lease payments amount to at least substantially all of the fair value of the leased asset.
The methods used in this assignment are the payback period, NPV, IRR, and describing factors if Caladonia Products were doing a lease versus a buy will also be considered. 12a-12e. Caladonia is considering two additional mutually exclusive projects. The cash flows associated with these projects are as follows: Year Project A Project B 0 -$100,000 -$100,000 1 32,000 0 2 32,000 0 3 32,000 0 4 32,000 0 5 32,000 $200,000 The required rate of return of these projects is 11%. Payback Period Payback period is a capital budgeting criterion measure, which promptly provides the number of years the project will return is original investment (Keown, Martin, Petty, & Scott, 2005, p.292).
Examples of these would include items that take some time to manufacture but that are sold as standard items such as residential housing, subway cars, aircraft, etc… (IAS 23.4). Borrowing costs are defined as interest on short-term and long-term debt and includes any amortization of discounts and premiums and finance charges on leases. The capitalization rate is defined as the annual borrowing costs divided by the weighted average debt that generated borrowing costs. The capitalization rate is applied to the weighted average expenditures made on qualifying assets. The resulting amount is the amount of
Code Sec. 61(a)(1) of the Internal Revenue Code (“IRC”) states that the general definition of gross income is “all income from whatever source derived, including (but not limited to) the following items: compensation for services, including fees, commissions, fringe benefits, and similar items.” IRC section 451(a) states “the amount of any item of gross income shall be included for the taxable year in which received by the taxpayer, unless under the method of accounting use in computing taxable income, such amount is to be properly accounted for as of a different period. Since the $300,000 received a fee in the form of compensation, it is gross income as defined under Code Sec. 61(a)(1) and John must include the $300,000 fee with his gross income for the current year while preparing his income taxes per Code Sec. 451(a).
1. What are the essential differences between endowments, final-salary definedbenefit (DB) pensions plans, and cash-balance (CB) pension plans? A Cash Balance plan is a defined benefit plan that specifies both the contribution to be counted to each participant and the investment earnings to be counted based on those contributions. Each participant has an account that resembles those in a 401(k) or profit sharing plan. They are based on two ways: 1) The company contribution – a percentage of pay or a flat dollar amount – determined by a specified formula 2) An annual interest credit.