provide answer with calculation and provide correct and incorrect option explanation LeaseAfric Ltd. is considering the purchase of a fleet of carsfor $337,500.00. It can borrow at 7.5%. The cars will be usedfor 4 years. The corporate tax rate is 35% and the cars belongin a 30% CCA class. Assuming beginning of period paymentsand no salvage value, what is the break-even lease payment?a) $101,024.32b) $102,422.43c) $91,632.31d) $96,328.32e) $110,104.11

Step 1: Calculate the after tax cost of borrowing: after tax = (cost of cars)x(interest rate)x(1-tax…

Answered: LeaseAfric Ltd. is considering the…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter19: Lease Financing

Section: Chapter Questions

Problem 6P: Big Sky Mining Company must install 1.5 million of new machinery in its Nevada mine. It can obtain a...

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LeaseAfric Ltd. is considering the purchase of a fleet of cars for $337,500.00. It can borrow at 7.5%. The cars will be used for 4 years. The corporate tax rate is 35% and the cars belong in a 30% CCA class. Assuming beginning of period payments and no salvage value, what is the break-even lease payment? a) $102,422.43 b) $96,328.32 c) $110,104.11 d) $91.632.31 e) $101,024.32
Company C is considering a leasing arrangement for an asset that has no value after its use for 3 years. It can borrow the value of the asset, at a 3-year simple interest loan of 10% with payments at the end of the year and buy the asset, or the company can make 3 equal end-of-year lease payments of $2,100,000 each and lease them. Annual maintenance costs associated with ownership are estimated at $240,000, but this cost would be borne by the lessor if it leases. What is the net advantage to leasing (NAL), if the firm's tax rate is 25%? (round to the nearest integer)(The Depreciation rate is 33.33% for Year 1, 33.33% for Year 2, and 33.33% for Year 3. The value of the asset $4,800,000)
The loan payment (principal plus interest) is $4,475 per year. The present value interest factor for a 5-year annuity at 15%: $15,000 / 3.3522. The $5,000 salvage value is a reduction to the cost of owning and results in an after tax cost of owning the equipment of $5,197. EXERCISE 14: PURCHASE VERSUS LEASE CALCULATION 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 1 $4,500 3,150 2,205 1,543 1,081 3 4 5
Suppose you decide to obtain a 4-year lease for a car and negotiate a selling price of$28,990, including license fees. The trade-in value of your old car is $3850. If you makea down payment of $2400, the money factor is 0.0027, and the residual value is$15,000, find each of the following.a. The net capitalized costb. The average monthly finance chargec. The average monthly depreciationd. The monthly lease payment
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Manning Imports is contemplating an agreement to lease equipment to a customer for four years. Manning normally sells the asset for a cash price of $230,000. .Assume that 8% is a reasonable rate of interest. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) What must be the amount of quarterly lease payments (beginning at the commencement of the lease) in order for Manning to recover its normal selling price as well as be compensated for financing the asset over the lease term? (Round your answers to nearest whole number and round percentage answer to 1 decimal place.)
Your company is considering the purchase of a fleet of cars for $195,000. It can borrow at 8.5%. The cars will be used for four years. At the end of four years they will be worthless. The corporate tax rate is 34%. The cars belong in CCA class 10 (a 30% class). What is the break-even lease payment? Select one: a. $47,328 b. $57,705 c. $35,675 d. $55,000 e. $56,128
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. a. $31,592 b. $46,120 c. $45,609 d. $52,653
A Machine costs $20,000 and can be depreciated over its useful life of 5 years. The Machine can be leased for an annual rate of 5000. For both the lessor and lessee, the tax rate is 21% and the interest rate is 9%. A: What is the depreciation Tax Shield? (20,000/5) *.21 = $840 B. What is the after-tax cost of the lease program? (5000) *(1-.21) = $3950 C. What are the total cash flows from leasing? = OCF = 840+3950 = $4790 D. What is the after-tax cost of debt? .09*(1-.21) = .0711 = 7.11% E. What is the net advantage of leasing for the lessee? F. What is the net advantage of leasing for the Lessor? G. What lease payment would make the deal equally desirable for both the lessee and the lessor? I need E, F and G I put in other answers for context
Paragon Leasing has been approached by Mid-America Trucking Company (MATC) to provide lease financing for a fleet of new tractors. Each tractor will cost $140,000 and will be leased by MATC for 7 years with lease payments made at the beginning of each year. Paragon will depreciate the tractors on a straight-line basis to $0 but the actual market value at the end of 7 years is estimated to be $25,000. What are the required annual beginning-of-year lease payments if Paragon desires to earn a 14% after-tax rate of return? Assume a marginal tax rate of 40%.
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 equipment

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