View the step-by-step solution to: Consider data in problem 18-1 (see below). Assume that Reynolds

Consider data in problem 18-1 (see below...
This question was answered on Sep 01, 2011. View the Answer
Consider data in problem 18-1 (see below). Assume that Reynolds tax rate is 40% and that the equipment's depreciation would be $100 per year. If the company leased the asset on a 2-year lease, the payment would be $110 at the beginning of each year. If Reynolds borrowed and bought, the bank would charge 10% interest on the loan. In either case, the equipment is worth nothing after 2 years and will be discarded.
Should Reynolds lease or buy the equipment?

Data from 18-1
Current Assets - $300 Debt - $400
Net fixed assets - $500 Equity - $400
Total Assets - $800 Total Claims - $800

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Dear Student Please find attached s... View the full answer

Finance.xls

Cash flows from Buying of the asset
Income Statement
Particulars/Year
Interest (1)
Depreciation (2)
PBT (3)=-(1)-(2)
Tax (4) = (3)*40%
PAT (5)=(3)-(4)
Cash flow from Operating activities...

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