View the step-by-step solution to:

# Your firm is considering leasing a new robotic milling control system. The lease lasts for 5 years. The lease calls for 6 payments of \$300,000 per

Your firm is considering leasing a new robotic milling control system. The lease lasts for 5 years. The lease calls for 6 payments of \$300,000 per year with the first payment occurring at lease inception. The system would cost \$1,050,000 to buy and would be straight-line depreciated to a zero salvage value. The actual salvage value is zero. The firm can borrow at 8%, and the corporate tax rate is 34%.
a. What is the appropriate discount rate for valuing the lease?
b. What is the after-tax cash flow from leasing in year 0?
c. What is the after-tax cash flow in years 1 through 5?
d. What is the NPV of the lease?

Your firm is considering leasing a new robotic milling control system. The lease lasts for 5 years. The lease calls for 6 payments of \$300,000 per year with the first payment occurring at lease inception. The system would cost \$1,050,000 to buy and would be straight-line depreciated to a zero salvage value. The actual salvage value is zero. The firm can borrow at 8%, and the corporate tax rate is 34%. a. What is the appropriate discount rate for valuing the lease? b. What is the after-tax cash flow from leasing in year 0? c. What is the after-tax cash flow in years 1 through 5? d. What is the NPV of the lease?

Solution:
Lease payments
Cost of system
Discount rate
Tax 300000
1050000
8%
34% a Appropriate rate for valuing the lease will be 8% b Calculating the after tax cash flows in year 0
=...

### Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

### -

Educational Resources
• ### -

Study Documents

Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

Browse Documents