Task: evaluate the payoffs from buying the asset versus using it on a lease arrangement. Given: The equipment costs €2000 000Interest rate on debt 8%.Depreciation MARCS (Modified Accelerated Cost Recovery Sys): 35% first year; 40% second year, 15% third year; and 10% fourth year.Marginal tax rate = 30%.If the firms buys the equipment, there is a four year maintenance cost of €30 000 payable at the beginning of each year. If the equipment is leased: Firm could obtain a 4-year lease which includes maintenance.Rental payment would be €500,000 at the beginning of each year.Residual (salvage) value at t = 4: €200,000.

To calculate pay-off, NPV has been calculated. NPV is the net current worth of cash flows that are…

Answered: Task: evaluate the payoffs from buying…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 9P

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Task: evaluate the payoffs from buying the asset versus using it on a lease arrangement.

Given:

The equipment costs €2000 000
Interest rate on debt 8%.
Depreciation MARCS (Modified Accelerated Cost Recovery Sys): 35% first year; 40% second year, 15% third year; and 10% fourth year.
Marginal tax rate = 30%.
If the firms buys the equipment, there is a four year maintenance cost of €30 000 payable at the beginning of each year.

If the equipment is leased:

Firm could obtain a 4-year lease which includes maintenance.

Rental payment would be €500,000 at the beginning of each year.

Residual (salvage) value at t = 4: €200,000.

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