LNZ Corp. is thinking about leasing equipment to make tinted lenses. This equipment would cost $600, 000 if purchased. The CCA rate on the equipment is 30% and the salvage value after its five-year life will be $122,451. There are no capital gains or losses to worry about. The firm's corporate tax rate is 40% and its pre- tax cost of debt is 10%. WeLease Corp. has offered to lease the system to LNZ for payments of $102,000 per year for five years. These lease payments would be made at the START of the year. Now suppose that you are told that the lens - tinting equipment would bring LNZ after-tax cost savings of $5,000 per year for five years. If all other details are as given in the original question data, how would these cost savings affect the NAL for LNZ? A) The NAL would decrease by $25,000. B) The NAL would decrease by $21,062. C) The NAL would increase by $25,000. D) The NAL would increase by $21,062. E) The NAL would not be affected.

LNZ Corp. is thinking about leasing equipment to make tinted lenses. This equipment would cost $600, 000 if purchased. The CCA rate on the equipment is 30% and the salvage value after its five-year life will be $122,451. There are no capital gains or losses to worry about. The firm's corporate tax rate is 40% and its pre- tax cost of debt is 10%. WeLease Corp. has offered to lease the system to LNZ for payments of $102,000 per year for five years. These lease payments would be made at the START of the year. Now suppose that you are told that the lens - tinting equipment would bring LNZ after-tax cost savings of $5,000 per year for five years. If all other details are as given in the original question data, how would these cost savings affect the NAL for LNZ? A) The NAL would decrease by $25,000. B) The NAL would decrease by $21,062. C) The NAL would increase by $25,000. D) The NAL would increase by $21,062. E) The NAL would not be affected.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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