PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 25, Problem 18PS
Valuing financial leases Nodhead College needs a new computer. It can either buy it for $250,000 or lease it from Compulease. The lease terms require Nod head to make six annual payments (prepaid) of $62,000. Nod head pays no tax. Compulease pays tax at 30%. Compulease can
- a. What is the NPY of the lease for Nodhead College?
- b. What is the
NPV for Compulease? - c. What is the overall gain from leasing?
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Carla Vista Leasing Company leases a new machine to Sharrer Corporation. The machine has a cost of $65,000 and fair value of $94,500. Under the 3-year, non-cancelable contract, Sharrer will receive title to the machine at the end of the lease. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2020. Carla Vista expects to earn an 8% return on its investment, and this implicit rate is known by Sharrer. The annual rentals are payable on each December 31, beginning December 31, 2020.
Prepare an amortization schedule that would be suitable for both the lessor and the lessee and that covers all the years involved. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places e.g. 5,275.)
Date
Rent Receipt/ Payment
Interest Revenue/ Expense
Reduction of Principal
Receivable/ Liability
1/1/20
$enter a dollar amount rounded to 0 decimal places…
Macinski Leasing Company leases a new machine to Sharrer Corporation. The machine has a cost of $70,000 and fair value of $95,000. Under the 3-year, non-cancelable contract, Sharrer will receive title to the machine at the end of the lease. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2017. Sharrer has an incremental borrowing rate of 9%. Macinski expects to earn an 8% return on its investment, and this implicit rate is known by Sharrer. The annual rentals of $34,133 are payable on each January 1st, beginning January 1, 2017.
Present value of an ordinary annuity of 1 for 3 periods at 8% : 2.57710
Present value of an ordinary annuity of 1 for 3 periods at 9% : 2.53130
Present value of annuity due of 1 for 3 periods at 8% : 2.78324
Present value of an annuity due of 1 for 3 periods at 9% : 2.75911
Please indicate what the lessee would record for the following journal entries in 2017. Round to the nearest whole dollar.
Dr. ROU Asset…
Crane Leasing Company leases a new machine to Sharrer Corporation. The machine has a cost of $65,000 and fair value of $91,000. Under the 3-year, non-cancelable contract, Sharrer will receive title to the machine at the end of the lease. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2020. Crane expects to earn an 8% return on its investment, and this implicit rate is known by Sharrer. The annual rentals are payable on each December 31, beginning December 31, 2020.
Prepare an amortization schedule that would be suitable for both the lessor and the lessee and that covers all the years involved.
Prepare the journal entry at commencement of the lease for Crane.
Prepare the journal entry at commencement of the lease for Sharrer.
Chapter 25 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 25 - Types of lease The following terms are often used...Ch. 25 - Reasons for leasing Some of the following reasons...Ch. 25 - Lease treatment in bankruptcy What happens if a...Ch. 25 - Lease treatment in bankruptcy How does the...Ch. 25 - Lease characteristics True or false? a. Lease...Ch. 25 - Operating leases Explain why the following...Ch. 25 - Inflation and operating leases In Problem 7, we...Ch. 25 - Technological change and operating leases Look at...Ch. 25 - Valuing financial leases Look again at Problem 7....Ch. 25 - Valuing Financial Leases Look again at the...
Ch. 25 - Valuing financial leases Look again at the bus...Ch. 25 - Valuing financial leases In Section 25-5, we...Ch. 25 - Valuing financial leases In Section 25-5, we...Ch. 25 - Valuing financial leases A lease with a varying...Ch. 25 - Valuing financial leases Nodhead College needs a...Ch. 25 - Valuing financial leases The Safety Razor Company...Ch. 25 - Nonrecourse debt Lenders to leveraged leases hold...Ch. 25 - Leveraged leases How would the lessee in Figure...Ch. 25 - Prob. 23PSCh. 25 - Valuing leases Suppose that the Greymare lease...
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