National Co. is considering leasing or purchasing a small aircraft to transport executives between manufacturing facilities and the main administrative headquarters. The firm is in the 40 percent tax bracket and its after-tax cost of debt is 7 percent. The estimated after-tax cash flows for the lease and purchase alternatives are given below: After-tax cash flow Lease -64,329 -64,329 -64,329 -64,329 64,329 End of year Purchase -68,454 -59,110 -63,596 -66,633 30,056 1 3 4
National Co. is considering leasing or purchasing a small aircraft to transport executives between manufacturing facilities and the main administrative headquarters. The firm is in the 40 percent tax bracket and its after-tax cost of debt is 7 percent. The estimated after-tax cash flows for the lease and purchase alternatives are given below: After-tax cash flow Lease -64,329 -64,329 -64,329 -64,329 64,329 End of year Purchase -68,454 -59,110 -63,596 -66,633 30,056 1 3 4
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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Which alternative will you recommend and what is the difference in the
Transcribed Image Text:National Co. is considering leasing or purchasing a small aircraft to transport
executives between manufacturing facilities and the main administrative
headquarters. The firm is in the 40 percent tax bracket and its after-tax cost of debt is
7 percent. The estimated after-tax cash flows for the lease and purchase alternatives
are given below:
After-tax cash flow
Lease
-64,329
-64,329
-64,329
-64,329
64,329
End of year
Purchase
-68,454
-59,110
-63,596
-66,633
30,056
1
3
4
5.
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