ANB Leasing is planning to lease an asset costing $210,000. The lease period will be 6 years. At the end of 6 years, the salvage value is estimated to be $30,000. The asset will be depreciated on a straight-line basis of $30,000 per year over the 6-year period. ANB's marginal income tax rate is 40%, but its average tax rate is only 31.5%. Assuming ANB Leasing requires a 12% after-tax rate of return on the lease, determine the required annual beginning of the year lease payments.
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ANB Leasing is planning to lease an asset costing $210,000. The lease period will be 6 years. At the end of 6 years, the salvage value is estimated to be $30,000. The asset will be
a. $31,592
b. $46,120
c. $45,609
d. $52,653
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- Firm A is considering leasing equipment. The equipment will provide $2.8 million in annual pre-tax cost savings. The cost of leasing is $8.78 million and the equipment will be depreciated straight-line to zero over five years. Assume a tax rate of 21% and a borrowing rate of 7%. Firm B has offered to lease this equipment for payments of $1.95 million per year. Assume that payments for the lease are made at the start of the year. i) What is the maximum lease payment that would be acceptable to Firm A? ii) Suppose now Firm B requires Firm A to pay a $600,000 security deposit at the inception of the lease, and this amount is refunded at the end of the lease. If the lease payment is still $1.95 million. Is it advantageous for Firm A to lease the equipment now?BBL Inc. is considering an equipment for its new factory. It can either purchase the equipment for $55,200 or lease it from QuickLease with 8 annual lease payments of $8,320 (payable at the beginning of each year). The equipment has CCA rate of 26% and salvage value of $8,160 at the end of year 8. A. BBL has tax rate of 24% and cost of debt of 7.2%. The asset class remains open with positive UCC after the sale of the equipment. Calculate the NPV of leasing for BBL and the maximum annual lease payment it will pay. B. QuickLease has tax rate of 31% and cost of debt of 4.8%. The equipment is the only asset in the asset class for QuickLease. Calculate the NPV of leasing for QuickLease and the minimum annual lease payment it will ассept.ASB is considering leasing a new machine. The lease calls for 9 payments of $1,403 per year with the first payment occurring immediately. The machine costs $8,683 to buy. The present value of CCA tax shield is $998. The present value of its salvage value is $496 and the present value of CCA recapture is $61. ASB firm can borrow at a rate of 10%. The corporate tax rate is 30%. What is the NPV of leasing?
- ABC Inc. is considering leasing some equipment for 10 years with equal lease payments at the end of each year. The equipment would cost $200,000 to buy and would be depreciated straight-line over 10 years to a zero-salvage value. The applicable cost of debt is 10%. The lessee does not expect to owe taxes for the next 15 years while the lessor's tax rate is 21%. What is the Lessor's minimum acceptable lease payment? (Do not round your intermediate calculations. Round only your final answer to 2 decimal places, if necessary. Note: Your final answer must be in dollars without the $ sign at the beginning)Hull Manufacturing Co. must decide whether to purchase or lease a new piece of equipment. The equipment can be leased for $4,000 a year or purchased for $15,000. The lease includes maintenance and service. The salvage value of the equipment at the end of five years is $5,000. If the equipment is owned, service and maintenance charges (a tax-deductible cost) would be $900 a year. The firm can borrow the entire amount at a rate of 15% if they buy. The tax rate is 50%. Which method of financing would you choose? Use the following capital cost allowance amounts. Year Amount $4,500 3,150 2,205 1,543 1,081 2 3 4Sigma 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?
- A company needs to decide whether to buy or lease new equipment. The equipment can be purchased for $600,000 or leased at an annual cost of $160,000. The equipment qualifies for a 30% CCA rate and has an expected life of 4 years. The salvage value is expected to be zero. The company's after-tax cost of debt is 8% and its tax rate is 20%. Lease payments would be due at the beginning of each year. Taxes are paid at the end of each year. What is the present value of the lease payments tax shield?Thomas Corporation is evaluating whether to lease or purchase equipment. Its tax rate is 21% . The company expects to use the equipment for 4 years, with no expected salvage value. The purchase price is $2 million and MACRS depreciation, 3-year class, will apply. If the company enters into a 4-year lease, the lease payment is $460,000 per year, payable at the beginning of each year. If the company purchases the equipment it will borrow from its bank at an interest rate of 11% . a. Calculate the cost of purchasing the equipment with debt.b.Calculate the cost of leasing the equipment.C.Calculate the net advantage to leasing. Should the company purchase or lease the equipmentSuper Sonics Entertainment is considering buying a machine that costs $445,000. The machine will be depreciated over five years by the straight-line method and will be worthless at that time. The company can lease the machine with year-end payments of $121,000. The company can issue bonds at a 10 percent interest rate. If the corporate tax rate is 35 percent. Assume that lease payments occur at the end of the year Calculate the NAL
- Brambles Inc is looking to acquire a new equipment for its project that will last for eight years. The after-tax required rate of return of the project is 16% per annum. Brambles can borrow at a before-tax interest rate of 8.5% per annum and buy the equipment outright or lease the equipment from ABC's Leasing. Brambles has evaluated the lease and decided to buy the equipment by borrowing since the NPV of lease is calculated to be -$12,000. However, the purchase cost of the equipment was under- estimated by $24,000, also the salvage value of the equipment at the end of the lease term was under- estimated by $8,000. The applicable corporate tax rate is 30% and the equipment is going to be fully depreciated over the eight years using a straight-line method. Will Brambles' decision be affected by adjusting the purchasing cost and salvage value? O It is now indifferent between lease and borrow-to-buy. The equipment should still be purchased by borrowing. None of the other answers is…The equipment, which manufactures Easter baskets, costs $74,000 and can be leased over seven years with payments being made at the beginning of each year The lessor calculates the lease payments based on an expected return of 11% over the seven years. (Ignore possible residual value of equipment to lessor.) The lease is a net lease. The firm is in the 40% marginal tax bracket.If bought, the equipment is expected to have a final salvage value of $7,500.The purchase of the equipment will result in a depreciation schedule of 20%, 32%, 19.2%, 11.52%, 11.52%, and 5.76% for the first six years (5-year property class) based on a $74,000 depreciable base. Loan payments are based on a 12% loan with payments occurring at the beginning of each period.Also require analysis that this equipment should Buy or Take on leases?Nu-Tek is considering leasing some equipment for 4 years with equal annual lease payments. The equipment would cost $74,000 to buy and would be depreciated straight-line over 4 years to a zero-salvage value. The actual salvage value is zero. The applicable pretax borrowing rate is 7.3 percent. The lessee does not expect to owe taxes for several years while the lessor's tax rate is 21 percent. What is the minimum lease payment that will be acceptable to both parties? (Do not round your intermediate calculations. Round only your final answer up to 2 decimal places, if necessary. Note: Your final answer must be in dollars without the $ sign at the beginning)