Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 25, Problem 8PS

Operating leases Acme has branched out to rentals of office furniture to start-up companies. Consider a $3,000 desk. Desks last for six years and can be depreciated on a five-year MACRS schedule (see Table 6.4). What is the break-even operating lease rate for a new desk? Assume that lease rates for old and new desks are the same and that Acme’s pretax administrative costs are $400 per desk per year. The cost of capital is 9% and the tax rate is 35%. Lease payments are made in advance, that is, at the start of each year. The inflation rate is zero.

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