insurance, and operating expenses. IT Greymare does not own the bus, it cannot depreciate it, and therefore, it gives up a valuable depreciation tax shield. We assume depreciation would be calculated immediately. All payments are in advance, that is, at the start of each year. Greymare's borrowing rate is 9%. Assume this is a financial lease. a. What is the value of the lease if Greymare's marginal tax rate is T = 0.30? b. What would the lease value be if the tax rate is 21%, but for tax purposes, the initial investment had to be written off in equal amounts over years 1 through 5? Note: For all requirements, a negative answer should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers in thousands rounded to 2 decimal places. Answer is complete but not entirely correct. a. Value of the lease $ 6,669.29 thousands b. Value of the lease $ 5,094.91 thousands

insurance, and operating expenses. IT Greymare does not own the bus, it cannot depreciate it, and therefore, it gives up a valuable depreciation tax shield. We assume depreciation would be calculated immediately. All payments are in advance, that is, at the start of each year. Greymare's borrowing rate is 9%. Assume this is a financial lease. a. What is the value of the lease if Greymare's marginal tax rate is T = 0.30? b. What would the lease value be if the tax rate is 21%, but for tax purposes, the initial investment had to be written off in equal amounts over years 1 through 5? Note: For all requirements, a negative answer should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers in thousands rounded to 2 decimal places. Answer is complete but not entirely correct. a. Value of the lease $ 6,669.29 thousands b. Value of the lease $ 5,094.91 thousands

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter19: Lease Financing

Section: Chapter Questions

Problem 2P: Lease versus Buy Consider the data in Problem 19-1. Assume that RCs tax rate is 40% and that the...

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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?
14) Good reasons for leasing include all of the following EXCEPT that: Leasing is a source of 100% financing for an asset. Leasing may not increase a firm's financial leverage. Leasing may encumber fewer assets than borrowing. Leasing transfers uncertainty about the future value of the leased asset to the lessor. Taxes may be reduced by leasing
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Based on last year’s Statement of Comprehensive Income, the company’s marginal tax rate was 35%. Before making the decision to buy or lease, Richard would like to carefully weigh the pros and cons of leasing versus borrowing and buying. However, the decision must be made soon, as the old refrigeration units are “on their last legs”! What factors, aside from the NAL, must Richard consider before making the lease versus buy decision? 2) Should Richard lease or buy the refrigeration units?
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