A Machine costs $20,000 and can be depreciated over its useful life of 5 years. The Machine can be leased for an annual rate of 5000. For both the lessor and lessee, the tax rate is 21% and the interest rate is 9%. A: What is the depreciation Tax Shield? (20,000/5) *.21 = $840 B. What is the after-tax cost of the lease program? (5000) *(1-.21) = $3950 C. What are the total cash flows from leasing? = OCF = 840+3950 = $4790 D. What is the after-tax cost of debt? .09*(1-.21) = .0711 = 7.11% E. What is the net advantage of leasing for the lessee? F. What is the net advantage of leasing for the Lessor? G. What lease payment would make the deal equally desirable for both the lessee and the lessor? I need E, F and G I put in other answers for context
A Machine costs $20,000 and can be
Step by step
Solved in 9 steps
