fm3_chapter06 - Page 204 Page 1 HOW NOT TO ANALYZE A LEASE...

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Unformatted text preview: Page 204 Page 1 HOW NOT TO ANALYZE A LEASE Asset cost 600,000 Interest rate 12% Lease rental payment 140,000 Annual depreciation 100,000 Tax rate 40% NPV(leasing) 386,801 #MACRO? NPV(buying) 435,544 #MACRO? A B C 1 2 3 4 5 6 7 8 9 UN-3B EQUIVALENT LOAN METHOD Asset cost 600,000 Interest rate 12% Lease rental payment 140,000 Annual depreciation 100,000 Tax rate 40% Year 1 2 3 4 5 6 After-tax cash flows from leasing After-tax lease rental-84,000-84,000-84,000-84,000-84,000-84,000 After-tax cash flows from buying the asset Asset cost-600,000 Depreciation tax shield 40,000 40,000 40,000 40,000 40,000 40,000 Net cash from buying-600,000 40,000 40,000 40,000 40,000 40,000 40,000 Differential cash flow: Lease saves lessor Lease minus buy 516,000-124,000-124,000-124,000-124,000-124,000-40,000 IRR of differential cash flow 8.30% #MACRO? Decision?? Buy #MACRO? Year Interest 1 532,070 149,539 63,848 85,691 124,000 124,000 2 446,379 145,426 53,565 91,861 124,000 124,000 3 354,518 141,017 42,542 98,475 124,000 124,000 4 256,044 136,290 30,725 105,565 124,000 124,000 5 150,479 131,223 18,057 113,166 124,000 124,000 6 37,313 41,791 4,478 37,313 40,000 40,000 Split of loan repayment between: Principal at beg. year Loan payment, end year Repayment of principal After-tax loan repayment Lease minus buy cash flows, years 1-6 =NPV((1-$B$6)*$B$3,G28:$G$33) =D28+B28-B29 =$B$3*B28 =B28-B29 =(1-$B$6)*D28+E28 A B C D E F G H 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 UN-3B...
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This note was uploaded on 01/23/2011 for the course FGB 780 taught by Professor Edwardchang during the Spring '09 term at Missouri State University-Springfield.

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fm3_chapter06 - Page 204 Page 1 HOW NOT TO ANALYZE A LEASE...

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