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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?
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8410646.xlsx

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
=...

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