26A 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 isnegligible. 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 ChoiceOOOO-$19.750-$24930-$250$24.530$250

Annual lease payments = $25,000Tax rate = 21%Annual lease payment net of tax savings =…

Answered: Alease has a term of 3 years and annual…

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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XYZ Company has an opportunity to purchase and asset that will cost the company $60,000. The asset is expected to add $12,000 per year to the company’s net income. Assuming the asset has a 5-year useful life and a zero salvage value, the unadjusted rate of return will be?
Consider an asset that costs $1,075, 196 and is depreciated straight-line to zero over its 15-year tax life. The asset is to be used in a 5-year project; at the end of the project, the asset can be sold for $109, 800. If the relevant tax rate is 0.39, what is the aftertax cash flow from the sale of this asset (SVNOT)?
Full details solution with explanation.
Assume that you calculated the ATER after year 3 as $275,000, the after-tax cash flow in year 4 was $6,800 and grew by 3% until year 8, and the ATER in year 8 was $300,000. Use this information to calculate the incremental IRR for not selling the property and collecting rents for years 4-8. What is the incremental IRR for not selling the property? A. 2.88% B. 4.29% C.-41.90% D. 6.40%
A 21%-tax bracket firm (Lessee) is considering the use, for two years, of a truck that costs $150,000 today. This firm can buy the asset or lease it from another 21%-tax bracket firm (Lessor) in exchange for $50,000 per year, with the first payment due at the time of signing. What is the Lessee's Time 0 incremental cash flow of buying the asset instead of leasing it?
A new machine costs $798,410 and falls in a 26.50% CCA class. The machine will have zero value after 5 years of use but will save $370,940 annually in operating costs before taxes in those five years. Assume a tax rate of 32.73%. Using a required return of 13.67%, what is the present value of the CCA tax shield? Question 18 options: $157,975 $162,026 $166,076 $170,127 $174,178
The Wet Corporation has an investment project that will reduce expenses by $30,000 per year for 3 years. The project's cost is $30,000. If the asset is part of the 3 year MACRS category (33.33% first year depreciation) and the company's combined tax rate is 29%, what is the cash flow from the project in year 1? Note: Do not round intermediate calculations. Round your answer to the nearest dollar amount. Multiple Choice $23,650 $24.980 $24.200 $25,660
Your firm needs a machine which costs $120,000, and requires $33,000 in maintenance for each year of its 5 year life. After 5 years, this machine will be replaced. The machine falls into the MACRS 5-year class life category. Assume a tax rate of 35 percent and a discount rate of 15 percent. What is the depreciation tax shield for this project in year 5?
6
Consider an asset that costs $369,600 and is depreciated straight-line to zero over its 7-year tax life. The asset is to be used in a 4-year project; at the end of the project, the asset can be sold for $46,200. If the relevant tax rate is 23 percent, what is the aftertax cash flow from the sale of this asset? Multiple Choice $72,006.00 $35,574.00 $311,862.00 $68,405.70 $75,606.30
An asset costs $640,000 and will be depreciated in a straight-line manner over its four-year life. It will have no salvage value. The lessor can borrow at 6 percent and the lessee can borrow at 6 percent. If the lessor is in the 30 percent tax bracket and the lessee falls in 10 percent tax bracket. For what range of lease payments does the lease have a positive NPV for the lessee? Select an answer that is closest to yours. O Lease payment $166,167.55 O Lease payment > $234,483.02
An asset costs $420,000 and will be depreciated in a straight-line manner over its 3-year life. It will have no salvage value. The corporate tax rate is 32 percent, and the cost of borrowing is 8 percent. What lease payment amount will make the lessee and the lessor equally well off?

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