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
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An asset costs $420,000 and will be
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- An asset costs $630,000 and will be depreciated in a straight-line manner over its three- year life. It will have no salvage value. The lessor can borrow at 6 percent and the lessee can borrow at 9 percent. The corporate tax rate is 21 percent for both companies. a. What lease payment will make the lessee and the lessor equally well off? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Lease payment b. Assume that the lessee pays no taxes and the lessor is in the 21 percent tax bracket. 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.) Lease payment toMTN is trying to decide whether to lease or buy some new equipment for its tool and die operations. The equipment costs ¢1.5 million has a 8-year life, and will be worthless after the 8 years. The pre-tax cost of borrowed funds is 8 percent and the tax rate is 32 percent. The equipment can be leased for ¢240,000 a year. What is the net advantage to leasing (NAL)?5. Suppose you are considering purchasing a machine or leasing one. The machine has a full economic life of 15 years, and is depreciated linearly to zero. There is no salvage value. For the same machine, you can buy it for $200,000, or lease it for $13,942 per year. Assume a tax rate of 27% and an after-tax cost of debt of 13%. Show work for all parts requiring computation. What is the after-tax lease payment (annual)? What is the depreciation tax shield (annual)? What is the incremental cash flow in absolute value (annual)? What is the net advantage to leasing? Should you lease or buy the machine? Why?
- Sigma Tools will lease a computerized stamping machine from StarBanc. The machine costs $500,000 and will be depreciated on a straight-line basis to a zero book value over the next 5 years, which is also the term of the lease. The expected salvage value in 5 years is $25,000. StarBanc's marginal tax rate is 30% and it requires an after-tax rate of return of 12% on investments of this type. What annual, end-of-the-year, pretax lease payment must StarBanc receive to earn the required 12% return?Assume zero taxes. Equipment can be leased at $10,000 per year (first payment one year hence) for ten years or purchased at a cost of $64,177. The company has a weighted average cost of capital of 15 percent. A bank has indicated that it would be willing to make a loan of $64,177 at a cost of 10 percent. Should the company buy or lease? The equipment will be used for ten years. There is zero salvage value.Next 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)
- Reynolds Construction (RC) needs a piece of equipment that costs $100,000. The equipment has an economic life of 2 years and no residual value. The equipment will not require maintenance because its useful life is so short. RC can borrow the full cost of the equipment at an interest rate of 10% with payments due at the end of the year. Alternatively, RC can lease the equipment for $55,000 with payments due at the end of the year. Assume RC chooses the lease, which is a finance lease for financial reporting purposes. Answer the following questions. (Hint: See Table 19-1.) What is the initial lease liability that must be reported on the balance sheet? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. What is the initial right-of-use asset? Do not round intermediate calculations. Round your answer to the nearest cent. What will RC report as an interest expense at Year 1? Round your answer to the nearest cent. Enter your…Steven's Auto Detailers is trying to decide whether to lease or buy some new equipment for polishing vehicles. The equipment costs $22,000, has a 3-year life, and will be worthless after the 3 years. The aftertax discount rate is 6.2 percent. The annual depreciation tax shield is $1,760 and the aftertax annual lease payment is $6,800. What is the net advantage to leasing?You are considering buying a new tractor that costs $275,000 that is expected to last five years. Apply straight line depreciation to the tractor which will have a salvage value of zero at the end of its useful life. You anticipate being sale the tractor for $30,250 in the five years' time. Your marginal tax rate is 26% and expect a rate of return at 6.25% to your investments. Assume no investment tax credit. Round answers to two places to the right of the decimal. Item Pre-Tax Flow After-Tax Flow Years Growth Rate Discount Rate PV Factor Present Value Machine -275,000 -275,000 0 - 0.0625 1 Depr Shield 1-5 0 0.0625 Terminal Value 5 0 0.0625 NPV NPC Use the information regarding the $275,000 tractor from the previous question to answer the following questions. What is the pre-tax recovery cost for this tractor? Hint: Calculate the cost recovery factor first Use the cost recovery factor to annualize the…
- Reynolds Construction (RC) needs a piece of equipment that costs $150,000. The equipment has an economic life of 3 years and no residual value. The equipment will not require maintenance because its useful life is so short. RC can borrow the full cost of the equipment at an interest rate of 7% with payments due at the end of the year. Alternatively, RC can lease the equipment for $55,000 with payments due at the end of the year. Assume RC chooses the lease, which is a finance lease for financial reporting purposes. Answer the following questions. (Hint: See Table 19-1.) What is the initial lease liability that must be reported on the balance sheet? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ What is the initial right-of-use asset? Do not round intermediate calculations. Round your answer to the nearest cent. $ What will RC report as an interest expense at Year 1? Round your answer to the nearest cent.…Reynolds Construction (RC) needs a piece of equipment that costs $150,000. The equipment has an economic life of 3 years and no residual value. The equipment will not require maintenance because its useful life is so short. RC can borrow the full cost of the equipment at an interest rate of 7% with payments due at the end of the year. Alternatively, RC can lease the equipment for $55,000 with payments due at the end of the year. Assume RC chooses the lease, which is a finance lease for financial reporting purposes. Answer the following questions. (Hint: See Table 19-1.) What will RC report as an amortization expense at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ What will RC report as the lease liability at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ What will RC report as the right-of-use asset at Year 1? Do…Consider a firm A that wishes to acquire an equipment. The equipment is expected to reduce costs by $5700 per year. The equipment costs $29000 and has a useful life of 7 years. If the firm buys the equipment, they will depreciate it straight-line to zero over 7 years and dispose of it for nothing. They can lease it for 7 years with an annual lease payment of $8000. If the after-tax interest rate on secured debt issued by company A is 7% and tax rate is 25%, what is the Net Advantage to Leasing (NAL)?(keep two decimal places) Answer: -18233.59