ABC can either purchase the machine for $225,000 or lease it from KLease for 12 annual lease payments (paid at the beginning of the year) of $26,000. The machine has CCA rate of 30%. The salvage value is expected to be $12,500. ABC does not have any other asset in the asset class and KLease always has a positive UCC in the asset class. ABC and KLease have cost of debt of 9% and 5%% respectively. KLease pays the statutory corporate tax rate of 25% and ABC only pays 15%. a) Calculate the NPV of leasing for ABC and KLease. b) What are the minimum and maximum annual lease pay
ABC can either purchase the machine for $225,000 or lease it from KLease for 12 annual lease payments (paid at the beginning of the year) of $26,000. The machine has CCA rate of 30%. The salvage value is expected to be $12,500. ABC does not have any other asset in the asset class and KLease always has a positive UCC in the asset class. ABC and KLease have cost of debt of 9% and 5%% respectively. KLease pays the statutory corporate tax rate of 25% and ABC only pays 15%. a) Calculate the NPV of leasing for ABC and KLease. b) What are the minimum and maximum annual lease pay
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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ABC can either purchase the machine for $225,000 or lease it from KLease for 12 annual lease payments (paid at the beginning of the year) of $26,000. The machine has CCA rate of 30%. The salvage value is expected to be $12,500. ABC does not have any other asset in the asset class and KLease always has a positive UCC in the asset class. ABC and KLease have cost of debt of 9% and 5%% respectively. KLease pays the statutory corporate tax rate of 25% and ABC only pays 15%.
a) Calculate the NPV of leasing for ABC and KLease.
b) What are the minimum and maximum annual lease payments that make leasing acceptable to both
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