Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
11th Edition
ISBN: 9780077861759
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 21, Problem 13QP
Setting the Lease Price An asset costs $720,000 and will be
- a. What set of lease payments will make the lessee and the lessor equally well off?
- b. Show the general condition that will make the value of a lease to the lessor the negative of the value to the lessee.
- c. Assume that the lessee pays no taxes and the lessor is in the 34 percent tax bracket. For what range of lease payments docs the lease have a positive
NPV for both parties?
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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 > $234,483.02
Contech (lessee) wishes to lease a printing press valued at $60,000 from Wrenn Capital (lessor) for a period of 4 years. Wrenn expects to depreciate the asset on a straight-line basis to a salvage value of $0. Actual salvage value is expected to be $8,000 at the end of 4 years. If Wrenn requires a 12% after-tax rate of return on the lease, what is the lessor's amount to be amortized? Assume Wrenn's marginal tax rate is 40%.
$60,000
$38,725
$41,778
$36,690
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.)
Chapter 21 Solutions
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 21 - Leasing vs. Borrowing What are the key differences...Ch. 21 - Leasing and Taxes Taxes are an important...Ch. 21 - Leasing and IRR What arc some of the potential...Ch. 21 - Leasing Comment on the following remarks: a....Ch. 21 - Accounting for Leases Discuss the accounting...Ch. 21 - IRS Criteria Discuss the IRS criteria for...Ch. 21 - Off- Balance Sheet Financing What is meant by the...Ch. 21 - Sale and Leaseback Why might a firm choose to...Ch. 21 - Leasing Cost Explain why the aftertax borrowing...Ch. 21 - Leasing vs. Purchase Why wouldnt Azul Linhas Arcas...
Ch. 21 - Reasons to Lease Why would ILFC be willing to buy...Ch. 21 - Leasing What do you suppose happens to the plane...Ch. 21 - Use the following information to work Problems...Ch. 21 - Use the following information to work Problems...Ch. 21 - Use the following information to work Problems...Ch. 21 - Use the following information to work Problems...Ch. 21 - Use the following information to work Problems...Ch. 21 - Use the following information to work Problems...Ch. 21 - Prob. 7QPCh. 21 - Prob. 8QPCh. 21 - Use the following information to work Problems...Ch. 21 - Use the following information to work Problems...Ch. 21 - Use the following information to work Problems...Ch. 21 - Debt Capacity Monster Magnet Manufacturing is...Ch. 21 - Setting the Lease Price An asset costs 720,000 and...Ch. 21 - Lease or Buy Wolfson Corporation has decided to...Ch. 21 - Setting the Lease Price An asset costs 590,000 and...Ch. 21 - Automobile Lease Payments Automobiles arc often...Ch. 21 - Prob. 17QPCh. 21 - Lease or Buy High electricity costs have made...Ch. 21 - THE DECISION TO LEASE OR BUY AT WARF COMPUTERS...Ch. 21 - DECISION TO LEASE OR BUY AT WARF COMPUTERS Warf...Ch. 21 - DECISION TO LEASE OR BUY AT WARF COMPUTERS Warf...Ch. 21 - DECISION TO LEASE OR BUY AT WARF COMPUTERS Warf...
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