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Al-Tek is considering leasing some equipment for 5 years with equal annual lease payments. The equipment would cost $200,000 to buy and would be depreciated straightline to a zero salvage value. The actual salvage value is zero.  The applicable pretax borrowing rate is 7 percent. The lessee's tax rate is 20 percent while the lessor's tax rate is 27 percent

Al-Tek is considering leasing some equipment for 5 years with equal annual lease payments. The equipment would cost $200,000 to buy and would be depreciated straightline to a zero salvage value. The actual salvage value is zero.  The applicable pretax borrowing rate is 7 percent. The lessee's tax rate is 20 percent while the lessor's tax rate is 27 percent

Essentials Of Investments
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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Al-Tek is considering leasing some equipment for 5 years with equal annual lease payments. The equipment would cost $200,000 to buy and would be depreciated straightline to a zero salvage value. The actual salvage value is zero.  The applicable pretax borrowing rate is 7 percent. The lessee's tax rate is 20 percent while the lessor's tax rate is 27 percent.

What is the maximum lease payment All-Tek would be willing to pay for both parties?

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