Task: evaluate the payoffs from buying the asset versus using it on a lease arrangement. Given: The equipment costs €2000 000 Interest rate on debt 8%. Depreciation MARCS (Modified Accelerated Cost Recovery Sys): 35% first year; 40% second year, 15% third year; and 10% fourth year. Marginal tax rate = 30%. If the firms buys the equipment, there is a four year maintenance cost of €30 000 payable at the beginning of each year. If the equipment is leased: Firm could obtain a 4-year lease which includes maintenance. Rental payment would be €500,000 at the beginning of each year. Residual (salvage) value at t = 4: €200,000.
Task: evaluate the payoffs from buying the asset versus using it on a lease arrangement. Given: The equipment costs €2000 000 Interest rate on debt 8%. Depreciation MARCS (Modified Accelerated Cost Recovery Sys): 35% first year; 40% second year, 15% third year; and 10% fourth year. Marginal tax rate = 30%. If the firms buys the equipment, there is a four year maintenance cost of €30 000 payable at the beginning of each year. If the equipment is leased: Firm could obtain a 4-year lease which includes maintenance. Rental payment would be €500,000 at the beginning of each year. Residual (salvage) value at t = 4: €200,000.
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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Task: evaluate the payoffs from buying the asset versus using it on a lease arrangement.
Given:
- The equipment costs €2000 000
- Interest rate on debt 8%.
Depreciation MARCS (Modified Accelerated Cost Recovery Sys): 35% first year; 40% second year, 15% third year; and 10% fourth year.- Marginal tax rate = 30%.
- If the firms buys the equipment, there is a four year maintenance cost of €30 000 payable at the beginning of each year.
If the equipment is leased:
Firm could obtain a 4-year lease which includes maintenance.
Rental payment would be €500,000 at the beginning of each year.
Residual (salvage) value at t = 4: €200,000.
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