An asset costs $420,000 and will be depreciated in a straight-line manner over its 3-year life. It will have no salvage value. The corporate tax rate is 32 percent, and the cost of borrowing is 8 percent. What lease payment amount will make the lessee and the lessor equally well off?
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An asset costs $420,000 and will be
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- Big Sky Mining Company must install 1.5 million of new machinery in its Nevada mine. It can obtain a bank loan for 100% of the purchase price, or it can lease the machinery. Assume that the following facts apply. (1) The machinery falls into the MACRS 3-year class. (2) Under either the lease or the purchase, Big Sky must pay for insurance, property taxes, and maintenance. (3) The firms tax rate is 25%. (4) The loan would have an interest rate of 15%. It would be nonamortizing, with only interest paid at the end of each year for four years and the principal repaid at Year 4. (5) The lease terms call for 400,000 payments at the end of each of the next 4 years. (6) Big Sky Mining has no use for the machine beyond the expiration of the lease, and the machine has an estimated residual value of 250,000 at the end of the 4th year. a. What is the cost of owning? b. What is the cost of leasing? c. What is the NAL of the lease?(1) Assume that the lease payments were actually 280,000 per year, that Consolidated Leasing is also in the 25% tax bracket, and that it also forecasts a 200,000 residual value. Also, to furnish the maintenance support, it would have to purchase a maintenance contract from the manufacturer at the same 20,000 annual cost, again paid in advance. Consolidated Leasing can obtain an expected 10% pre-tax return on investments of similar risk. What are its NPV and IRR of leasing under these conditions? (2) What do you think the lessors NPV would be if the lease payment were set at 260,000 per year? (Hint: The lessors cash flows would be a mirror image of the lessees cash flows.)An asset costs $420,000 and will be depreciated in a straight-line manner over its 3-year life. It will have no salvage value. The corporate tax rate is 32 percent, and the cost of borrowing is 8 percent. What lease payment amount will make the lessee and the lessor equally well off? Without excel preferably
- An asset costs $900,000 and will be depreciated in a straight-line manner over its five-year life. It will have no salvage value. The corporate tax rate is 22 percent and the appropriate interest rate is 9 percent. a. What would the lease payment have to be to make both the lessor and lessee indifferent about the lease? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Assume that the lessee pays no taxes and the lessor pays taxes. For what range of lease payments does the lease have a positive NPV for both parties? (Enter your answers from lowest to highest. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)An asset costs $640,000 and will be depreciated in a straight-line manner over its four-year life. It will have no salvage value. The lessor can borrow at 6 percent and the lessee can borrow at 6 percent. If the lessor is in the 30 percent tax bracket and the lessee falls in 10 percent tax bracket. For what range of lease payments does the lease have a positive NPV for the lessee? Select an answer that is closest to yours. Group of answer choices Lease payment < $220,186.17 Lease payment < $184,630.61 Lease payment > $166,167.55 Lease payment > $234,483.02Next Corporation needs a piece of equipment that costs $270 million. Next can either lease the equipment or borrow $270 million from a local bank and buy the equipment. If the equipment is leased, the lease would not have to be capitalized. Assume that Next’s tax rate is 35% and that the equipment’s depreciation would be $90 million per year. If the company leased the asset on a 3-year lease, the payment would be $105 million at the beginning of each year. If Next borrowed and bought, the bank would charge 12% interest on the loan. In either case, the equipment is worth nothing after 3 years and will be discarded. Should Next lease or buy the equipment? (solve in excel)
- Eclipse Construction Company is considering selling excess machinery with a book value of $280,000 (original cost of $400,000 less accumulated depreciation of $120,000) for $221,000, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $216,000 for five years, after which it is expected to have no residual value. During the period of the lease, Eclipse Construction Company’s costs of repairs, insurance, and property tax expenses are expected to be $14,200. Required: A. Prepare a differential analysis, dated April 16 to determine whether Eclipse should lease (Alternative 1) or sell (Alternative 2) the machinery. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter “0”. A colon (:) will automatically appear if required. B. On the basis of the data…Stowe Construction Company is considering selling excess machinery with a book value of $281,500 (original cost of $400,300 less accumulated depreciation of $118,800) for $274,900, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $285,500 for 5 years, after which it is expected to have no residual value. During the period of the lease, Stowe Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $24,900. Question Content Area a. Prepare a differential analysis dated March 21 to determine whether Stowe Construction Company should lease (Alternative 1) or sell (Alternative 2) the machinery. If required, use a minus sign to indicate a loss. Differential AnalysisLease (Alt. 1) or Sell (Alt. 2) MachineryMarch 21 Line Item Description LeaseMachinery(Alternative 1) SellMachinery(Alternative 2) DifferentialEffects(Alternative 2) Revenues $Revenues $Revenues $Revenues Costs Costs Costs Costs…Red Bull F1 plans to purchase or lease $277,764 worth of equipment. Ifpurchased, the equipment will be depreciated on a straight-line basis overfive years, after which it will be worthless. If leased, the annual leasepayments will be $42,922 per year at the end of every year for five years.Assume Red Bull F1's borrowing cost is 8%, the tax rate is 35%, and thelease qualifies as a true tax lease.If Red Bull F1 purchases the equipment, what is the amount of the lease equivalent loan?
- The equipment, which manufactures Easter baskets, costs $74,000 and can be leased over seven years with payments being made at the beginning of each year The lessor calculates the lease payments based on an expected return of 11% over the seven years. (Ignore possible residual value of equipment to lessor.) The lease is a net lease. The firm is in the 40% marginal tax bracket.If bought, the equipment is expected to have a final salvage value of $7,500.The purchase of the equipment will result in a depreciation schedule of 20%, 32%, 19.2%, 11.52%, 11.52%, and 5.76% for the first six years (5-year property class) based on a $74,000 depreciable base. Loan payments are based on a 12% loan with payments occurring at the beginning of each period.Also require analysis that this equipment should Buy or Take on leases?A Machine costs $20,000 and can be depreciated over its useful life of 5 years. The Machine can be leased for an annual rate of 5000. For both the lessor and lessee, the tax rate is 21% and the interest rate is 9%. A: What is the depreciation Tax Shield? (20,000/5) *.21 = $840 B. What is the after-tax cost of the lease program? (5000) *(1-.21) = $3950 C. What are the total cash flows from leasing? = OCF = 840+3950 = $4790 D. What is the after-tax cost of debt? .09*(1-.21) = .0711 = 7.11% E. What is the net advantage of leasing for the lessee? F. What is the net advantage of leasing for the Lessor? G. What lease payment would make the deal equally desirable for both the lessee and the lessor? I need E, F and G I put in other answers for contextBeemer Construction Company is considering selling excess machinery with a bookvalue of $280,000 (original cost of $400,000 less accumulated depreciation of$120,000) for $221,000, less a 5% brokerage commission. Alternatively, the machinerycan be leased for a total of $216,000 for five years, after which it is expected to haveno residual value. During the period of the lease, Eclipse Construction Company'scosts of repairs, insurance, and property tax expenses are expected to be $14,200. Prepare and show in solution a differential analysis, dated April 16 to determinewhether Beemer should lease (Alternative 1) or sell (Alternative 2) the machinery
