Ch.22. Problems in leasing 1. New truck : A company is deciding whether to lease or buy a new truck. The truck can be purchased for $50,000 or leased for a 6-year period for $10,000/year (due at the beginning of each year). The firm can borrow at 10%. If purchased, the firm will incur insurance and maintenance costs of $750 per year. The truck has a CCA rate of 30%. Salvage value in six years is expected to be $2,000. The firm’s marginal tax rate is 40% and its after-tax cost of capital is 15%. 2. Lease payments : a) Find the minimum lease payments (paid at the beginning of the year) acceptable to the lessor if the depreciation rate is 30%, the tax rate 45%, the borrowing rate 10%, an expected salvage value $200,000, WACC 12%, and the life of the asset (which costs $2,000,000) 5 years. b) The lessee can borrow at 11% and pays no tax. What is the maximum lease payment that the lessee would be willing to pay? The lessee’s WACC is 12%. 3.
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