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Jeff & Bezos is a fresh groceries delivery company. They have access to borrowing funds at a pre-tax rate of 6% per year. Jeff & Bezos pays income taxes using 21 % tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. Jeff & Bezos is contemplating leasing the drones for a lease term that matches the drones' economic life. It would lease them from a different company, Nets & Flicks, that currently own the required number of the drones. Instead of leasing the fleet of the drones, Jeff & Bezos is also contemplating buying them, which would cost the company $4,500,000. If the

Jeff & Bezos is a fresh groceries delivery company. They have access to borrowing funds at a pre-tax rate of 6% per year. Jeff & Bezos pays income taxes using 21 % tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. Jeff & Bezos is contemplating leasing the drones for a lease term that matches the drones' economic life. It would lease them from a different company, Nets & Flicks, that currently own the required number of the drones. Instead of leasing the fleet of the drones, Jeff & Bezos is also contemplating buying them, which would cost the company $4,500,000. If the

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
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Jeff & Bezos is a fresh groceries delivery company. They have access to borrowing funds at a pre-tax rate of 6 % per year. Jeff & Bezos pays income taxes using 21 % tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. Jeff & Bezos is contemplating leasing the drones for a lease term that matches the drones' economic life. It would lease them from a different company, Nets & Flicks, that currently own the required number of the drones. Instead of leasing the fleet of the drones, Jeff & Bezos is also contemplating buying them, which would cost the company $4,500,000. If the company chooses to buy them, the drones would be losing their economic value following the straight-line depreciation method during a three year period. The fleet of drones, due to their heavy usage, would have no salvage value in three years. Calculate the pre-tax lease payment that would make both Jeff & Bezos and Nets & Flicks indifferent between entering the lease agreement and walking away from it. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Your answer should be typed as a positive value.) Break-even lease payment
Transcribed Image Text:Jeff & Bezos is a fresh groceries delivery company. They have access to borrowing funds at a pre-tax rate of 6 % per year. Jeff & Bezos pays income taxes using 21 % tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. Jeff & Bezos is contemplating leasing the drones for a lease term that matches the drones' economic life. It would lease them from a different company, Nets & Flicks, that currently own the required number of the drones. Instead of leasing the fleet of the drones, Jeff & Bezos is also contemplating buying them, which would cost the company $4,500,000. If the company chooses to buy them, the drones would be losing their economic value following the straight-line depreciation method during a three year period. The fleet of drones, due to their heavy usage, would have no salvage value in three years. Calculate the pre-tax lease payment that would make both Jeff & Bezos and Nets & Flicks indifferent between entering the lease agreement and walking away from it. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Your answer should be typed as a positive value.) Break-even lease payment
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