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?

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?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 2P

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