fm3_problems06 - Exercise 1 A 1 2 3 4 5 6 7 8 9 10 11 12 13...

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Exercise 1 Page 1 Part a Asset cost 1,000,000 Interest rate 10% Lease rental payment 214,931 Annual depreciation 166,667 Tax rate 40% Year 0 1 2 3 4 5 After-tax cash flows from leasing After-tax lease rental -128,958 -128,958 -128,958 -128,958 -128,958 -128,958 After-tax cash flows from buying the asset Asset cost -1,000,000 Depreciation tax shield 66,667 66,667 66,667 66,667 66,667 Net cash flow from buying -1,000,000 66,667 66,667 66,667 66,667 66,667 Differential cash flow Lease minus buy 871,042 -195,625 -195,625 -195,625 -195,625 -195,625 IRR of differential cash flow 6.00% Decision?? indifferent <-- =IF(ABS(B22-(1-B7)*B4)<0.01,"indifferent",IF(B22<(1 Break-even IRR 6.00% To answer part b: use Solver to find lease payment = 214,931 A B C D E F G 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
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Exercise 1 Page 2 6 66,667 66,667 -66,667 1-B7)*B4,"lease","buy")) H I J 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
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Exercise 2 Page 3 Lessee's problem below, Lessor's problem in row 28 Lessee's problem Asset cost 1,000,000 Interest rate 10% Lease rental payment 200,000 Annual depreciation 20% 32% 19.20% 11.52% 11.52% 5.76% Tax rate 0%
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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_problems06 - Exercise 1 A 1 2 3 4 5 6 7 8 9 10 11 12 13...

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