Your firm is considering leasing a newcomputer. The lease lasts for 9 years.The lease calls for 10 payments of$1,000 per year with the first paymentoccurring immediately. The computerwould cost $7,650 to buy and wouldbe straight-line depreciated to a zerosalvage value over 9 years. The actualsalvage value is negligible because oftechnological obsolescence. The firmcan borrow by issuing debt at a rate of8%. The corporate tax rate is 30%.What would the after-tax cash flow inyear 9 be if the asset had a residualvalue of $500 (ignoring any possiblerisk differences)?Group of answer choicesNone of these-$605-$1,455-$1,305-$955

A lease is a contractual agreement under which the owner of an asset (LESSOR) permits the LESSEE to…

Answered: Your firm is considering leasing a new…

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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Your firm is considering leasing a new robotic milling control system. The lease lasts for 5 years. The lease calls for 6 payments of $300,000 per year with the first payment occurring at lease inception. The system would cost $1,050,000 to buy and would be straight-line depreciated to a zero salvage value. The actual salvage value is zero. The firm can borrow at 8%, and the corporate tax rate is 34%. What is the maximum lease payment that you would be willing to make?
Your firm is considering leasing a new computer. The lease lasts for 9 years. The lease calls for 10 payments of $1,000 per year with the first payment occurring immediately. The computer would cost $7,650 to buy and would be straight-line depreciated to a zero salvage value over 9 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 8%. The corporate tax rate is 30%. What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in years 1-9?
2. The controller has asked you to consider three separate options that your firm has for getting a new software/computer system. The first option is to lease the system. The annual payment will be $15 million for the first year and it will grow at 5% a year. The lease contract is 5 years long. In this case, the lease expenses are operating and therefore would be tax-deductible. The second option is to buy the system for $38 million and depreciate it over 4 years, which is the expected life of the project. A third choice is to buy the system for $38 million and take it as an immediate expense. The system has an expected life of 4 years. If the tax rate is 40% and the cost of capital is 10%, estimate the equivalent annual costs of each option.
A property has a maturing loan and needs to be refinanced. It is appraised at $25 million based on a cap rate of 6%. Your lender has put two constraints on your next loan. It must have debt service coverage of 1.5x and LTV of 50%. Interest rates are 5% and the lender offers you a 10-year loan with a 20- year amortization schedule. Which constraint limits your loan? How much can you borrow?
A physics lab is considering leasing a diagnostic scanner that costs $5,800,000, and it would be depreciated straight-line to zero over four years. Because of radiation contamination, it will actually be completely valueless in four years. You can lease it for four years. Assume tax rate is 21% for the leasing company (lessor) and zero for the lab. The cost of borrowing is 8%. Over what range of lease payments will the lease be profitable for both lessee and lessor? handwrite please
Your landscaping company can lease a truck for $8,150.00 a year for 4 years. It can instead buy the truck for $23,388.56. The truck will be valueless after 4 years. a. What is the present value of the lease payments, If the interest rate your company can earn on its funds is 11.00%. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Present value b. Is it cheaper to buy or lease? buy lease
An investor has an opportunity of borrowing sh. 1000,000 to buy a machine which will only last one year and it is written off. The rate of interest is 8% p.a.The machien will generate a revenue of sh. 1,200,000. Compute Marginal effeciency capital (MEC) and advice him on whether he should consider under taking the project or not
A firm is considering whether to buy specialized equipment that would cost $200,000 and have annual costs of $15,000. After 5 years of operation, the equipment would have no salvage value. The same equipment can be leased for $50,000 per year (annual costs included in the lease), payable at the beginning of each year. If the firm uses an interest rate of 5% per year, the annual cost advantage of leasing over purchasing is nearest what value? (a) $2494 (b) $8694 (c) $11,200 (d) $12,758
Your company is trying to decide whether it should purchase a copier from Xerox or lease it. The copier has an expected life of 6 years, after which it has only marginal value (you can ignore any residual value). If you purchase it, the price is $145,000, payable now, and you would have to pay an annual service charge of $8,000. If you lease it, you would have an annual payment of $36,000 each year (for 6 years), which includes service. The lease payment and the annual service charge occur at the beginning of each year. The interest rate is 3.8%. Which option is least costly?
A physics lab is considering leasing a diagnostic scanner that costs $5,800,000, and it would bedepreciated straight-line to zero over four years. Because of radiation contamination, it will actuallybe completely valueless in four years. You can lease it for four years. Assume tax rate is 21% for theleasing company (lessor) and zero for the lab. The cost of borrowing is 8%. Over what range of leasepayments will the lease be profitable for both lessee and lessor?
A database marketing firm can lease its computer equipment with beginning-of-quarter payments of $10,000 for three years. Alternatively, it can purchase the equipment for $131,200 on a loan at a rate of 9% compounded quarterly with an expected resale value after three years of $33,000. Which option would you recommend, and how much better in today's dollars is your chosen alternative?
Your landscaping company can lease a truck for $8800 a year (paid at year-end) for 5 years. It can instead buy the truck for $38000. The truck will be valueless after 5 years. The interest rate your company can earn on its funds is 6%. 1. present value of the lease - $37,068.80 2. is it cheaper to buy or lease? Lease 3. present value of the lease if the lease payments are an annuity due? $39292.93 4. is it now cheaper to buy or lease? Buy

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