Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Question
Chapter 27, Problem 10QP
a.
Summary Introduction
To determine: The fact that the lessor and lessee have different borrowing rates that affects the NAL calculations.
Introduction:
Lease: An asset can be leased or purchased. A lease in a contractual agreement made between two parties; lessor and lessee. The agreement explains the use of asset for a particular time by lessee. In return, lessor gets periodical payments for the use of asset.
b.
Summary Introduction
To determine: The set of lease payments that will make the lessor and lessee equally well off.
c.
Summary Introduction
To determine: The range of lease payment that the lease has a positive
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Students have asked these similar questions
Suppose that National Waferonics has before it a proposal for a four-year financial lease.
Year 0
Year 1
Year 2
Year 3
Lease cash flow
+59,200
−27,900
−23,300
−18,700
These flows reflect the cost of the machine, depreciation tax shields, and the after-tax lease payments. Ignore salvage value. Assume the firm could borrow at 14% and faces a 21% marginal tax rate.
a. What is the value of the equivalent loan?
b. What is the value of the lease?
26
A lease has a term of 3 years and annual payments of $25,000. The leased asset would cost $74,000 to buy and would be depreciated straight line to a zero salvage value over 3 years. The actual salvage value is
negligible. The lessee can borrow at a rate of 12 percent and has a tax rate of 21 percent. What is the incremental cash flow of purchasing instead of leasing for Year 3 from the lessee's perspective?
Multiple Choice
O
O
O
O
-$19.750
-$24930
-$250
$24.530
$250
A company borrows $4 to finance a project. It has two choices when beginning the project. The
first option has potential payoff of either $2 or $8 (both equally likely). The second option has
potential payoffs of $0 or $16 (both equally likely). The lender would prefer the _____ option
because the expected value of the first option is
option is
and the expected value of the second
first; $3; $2
first; $8; $5
second; $5; $8
second; $16; $4
Chapter 27 Solutions
Fundamentals of Corporate Finance
Ch. 27.1 - Prob. 27.1ACQCh. 27.1 - Prob. 27.1BCQCh. 27.1 - What is a sale and leaseback agreement?Ch. 27.2 - Prob. 27.2ACQCh. 27.2 - Prob. 27.2BCQCh. 27.3 - Why is the IRS concerned about leasing?Ch. 27.3 - What are some standards the IRS uses in evaluating...Ch. 27.4 - What are the cash flow consequences of leasing...Ch. 27.4 - Prob. 27.4BCQCh. 27.5 - Prob. 27.5ACQ
Ch. 27.5 - Prob. 27.5BCQCh. 27.6 - Prob. 27.6ACQCh. 27.6 - What paradox does the previous question create?Ch. 27.7 - Prob. 27.7ACQCh. 27.7 - If leasing is tax motivated, who will have the...Ch. 27 - Winston, Inc., is computing the net advantage to...Ch. 27 - Prob. 1CRCTCh. 27 - Leasing and Taxes [LO3] Taxes are an important...Ch. 27 - Prob. 3CRCTCh. 27 - Prob. 4CRCTCh. 27 - Prob. 5CRCTCh. 27 - IRS Criteria [LO1] Discuss the IRS criteria for...Ch. 27 - OffBalance Sheet Financing [LO1] What is meant by...Ch. 27 - Prob. 8CRCTCh. 27 - Prob. 9CRCTCh. 27 - Prob. 10CRCTCh. 27 - Prob. 11CRCTCh. 27 - Prob. 12CRCTCh. 27 - Prob. 1QPCh. 27 - Leasing Cash Flows [LO3] What is the NAL of the...Ch. 27 - Prob. 3QPCh. 27 - Prob. 4QPCh. 27 - Setting the Lease Payment [LO3] In the previous...Ch. 27 - MACRS Depreciation and Leasing [LO3] Rework...Ch. 27 - Lease or Buy [LO3] What is the NAL for Wildcat?...Ch. 27 - Prob. 8QPCh. 27 - Prob. 9QPCh. 27 - Prob. 10QPCh. 27 - Prob. 11QPCh. 27 - Prob. 12QPCh. 27 - The Decision to Lease or Buy at Warf Computers...Ch. 27 - The Decision to Lease or Buy at Warf Computers...Ch. 27 - The Decision to Lease or Buy at Warf Computers...Ch. 27 - Prob. 4M
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