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Chapter_21

# Chapter_21 - Chapter 21 Problems 1-17 Input boxes in tan...

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Chapter 21 Problems 1-17 Input boxes in tan Output boxes in yellow Given data in blue Calculations in red Answers in green NOTE: Some functions used in these spreadsheets may require that the "Analysis ToolPak" or "Solver Add-in" be installed in Excel. To install these, click on "Tools|Add-Ins" and select "Analysis ToolPak and "Solver Add-In."

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Chapter 21 Question 1-5 Input Area: Cost \$3,000,000 Life of machine 4 Lease price \$895,000 Borrowing rate 8% Tax rate 35% Output Area: 1) Depreciation tax shield \$262,500 Aftertax cost of debt 5.20% Aftertax lease payment \$581,750 Total cash flow \$844,250 NAL \$20,187.17 You should lease. 2) NAL \$(20,187.17) 3) Breakeven lease payment \$903,799.22 4) If the tax rate is zero, there is no depreciation tax shield foregone; the aftertax lease payment is the same as the pretax payment, and the aftertax cost of debt is the same as the pretax cost. NAL \$35,646.48 5) From #3, the lessor breaks even with a payment of \$903,799.22 Lessee breakeven \$905,762.41

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Chapter 21 Question 6 Input Area: Cost \$3,000,000 Life of machine 4 Lease price \$895,000 Borrowing rate 8% Tax rate 35% MACRS schedule 0.3330 0.4440 0.1480 0.0740 Output Area: Aftertax lease payment \$581,750 Aftertax borrowing rate 5.20% Year 1 Leasing CF 1 \$931,400 2 \$1,047,950 3 \$737,150 4 \$659,450 NAL \$(3,842.20) The machine should not be leased.

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Chapter 21 Question 7 Input Area: Cost \$350,000 Life of machine 5 Lease price \$94,200 Borrowing rate 9% Tax rate 35% Output Area: Depreciation tax shield \$24,500 Aftertax cost of debt 5.85% Aftertax lease payment \$61,230 Total cash flow \$85,730 NAL \$(12,604.35) They should buy.
Chapter 21

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