Problem 25-18 Valuing financial leases Nodhead College needs a new computer. It can either buy it for $285,000 or lease it from Compulease. The lease terms require Nodhead to make six annual payments (prepaid) of $69,000. Nodhead pays no tax. Compulease pays tax at 30%. Compulease can depreciate the computer for tax purposes straight-line over five years. The computer will have no residual value at the end of year 5. The interest rate is 10%. a. What is the NPV of the lease for Nodhead College? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to the nearest whole number.) Answer is complete and correct. Net present value (45,564) b. What is the NPV for Compulease? (Do not round intermediate calculations. Round your answer to the nearest whole number.) b. What is the NPV for Compulease? (Do not round intermediate calculations. Round your answer to the nearest whole number.) Answer is complete but not entirely correct. Net present value 32,437 X c. What is the overall gain from leasing? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to the nearest whole number.) Answer is complete but not entirely correct. Overall gain (13,127) X
Problem 25-18 Valuing financial leases Nodhead College needs a new computer. It can either buy it for $285,000 or lease it from Compulease. The lease terms require Nodhead to make six annual payments (prepaid) of $69,000. Nodhead pays no tax. Compulease pays tax at 30%. Compulease can depreciate the computer for tax purposes straight-line over five years. The computer will have no residual value at the end of year 5. The interest rate is 10%. a. What is the NPV of the lease for Nodhead College? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to the nearest whole number.) Answer is complete and correct. Net present value (45,564) b. What is the NPV for Compulease? (Do not round intermediate calculations. Round your answer to the nearest whole number.) b. What is the NPV for Compulease? (Do not round intermediate calculations. Round your answer to the nearest whole number.) Answer is complete but not entirely correct. Net present value 32,437 X c. What is the overall gain from leasing? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to the nearest whole number.) Answer is complete but not entirely correct. Overall gain (13,127) X
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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Transcribed Image Text:Problem 25-18 Valuing financial leases
Nodhead College needs a new computer. It can either buy it for $285,000 or lease it from Compulease. The lease terms
require Nodhead to make six annual payments (prepaid) of $69,000. Nodhead pays no tax. Compulease pays tax at 30%.
Compulease can depreciate the computer for tax purposes straight-line over five years. The computer will have no residual
value at the end of year 5. The interest rate is 10%.
a. What is the NPV of the lease for Nodhead College? (A negative answer should be indicated by a minus sign. Do not round
intermediate calculations. Round your answer to the nearest whole number.)
Answer is complete and correct.
Net present value
(45,564)
b. What is the NPV for Compulease? (Do not round intermediate calculations. Round your answer to the nearest whole
number.)
Transcribed Image Text:b. What is the NPV for Compulease? (Do not round intermediate calculations. Round your answer to the nearest whole
number.)
Answer is complete but not entirely correct.
Net present value
32,437 X
c. What is the overall gain from leasing? (A negative answer should be indicated by a minus sign. Do not round intermediate
calculations. Round your answer to the nearest whole number.)
Answer is complete but not entirely correct.
Overall gain
(13,127) X
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