An asset costs $640,000 and will be depreciated in a straight-line manner over its four-year life. It will have nosalvage value. The lessor can borrow at 6 percent and the lessee can borrow at 6 percent. If the lessor is in the30 percent tax bracket and the lessee falls in 10 percent tax bracket. For what range of lease payments doesthe lease have a positive NPV for the lessee? Select an answer that is closest to yours.O Lease payment < $220,186.17O Lease payment < $184,630.61O Lease payment > $166,167.55O Lease payment > $234,483.02

Here, we are using the concept of NAL(Net Advantage of Leasing) shows amount saved by a company by…

Answered: An asset costs $640,000 and will be…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 1P

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An asset costs $640,000 and will be depreciated in a straight-line manner over its four-year life. It will have no salvage value. The lessor can borrow at 6 percent and the lessee can borrow at 6 percent. If the lessor is in the 30 percent tax bracket and the lessee falls in 10 percent tax bracket. For what range of lease payments does the lease have a positive NPV for the lessee? Select an answer that is closest to yours. Group of answer choices Lease payment < $220,186.17 Lease payment < $184,630.61 Lease payment > $166,167.55 Lease payment > $234,483.02
An asset costs $640,000 and will be depreciated in a straight-line manner over its four-year life. It will have no salvage value. The lessor can borrow at 6 percent and the lessee can borrow at 6 percent. If the lessor is in the 20 percent tax bracket and the lessee pays no taxes. For what range of lease payments does the lease have a positive NPV for both parties? Between $184,561 and $184,699 Between $179,650 and $184,699 Between $179,650 and $184,561 The range does not exist
Apply the generalized lease valuation model to the lease considered by Alberton Shop company, assuming the frm is currently in a nontaxpaying position but expect commencing tax payments in year 3 ( G = 3). All tax benefits are assumed to be carried forward and fully absorbed in year 3. from the table below start with Step 1: to compute the PV of the lease payments from year 0 to year 2 at 8%. since $13,000 is paid each year.
Bird Wing Bedding can lease an asset for 4 years with payments of $24,000 due at the beginning of the year. The firm can borrow at a 9% rate and pays a 25% federal-plus-state tax rate. The lease qualifies as a tax-oriented lease. What is the cost of leasing? Do not round intermediate calculations. Round your answer to the nearest dollar.
A lease with a term of 4 years calls for annual payments of $3,400. The leased asset would cost $11,300 to buy and would be depreciated straight-line to a zero salvage value over the 4 years. The actual salvage value is negligible. The firm can borrow at a rate of 6 percent. What is the NPV of the lease relative to the purchase if the lessee's tax rate is 21 percent? X -$1,699 $197 -$399 -$194 $23,107
A lessor acquired equipment for $82,100 and plans to lease it for a period of five years. If the equipment has no estimated residual value, what must be the annual lease charge for the lessor to earn 10 percent on the investment? Use Appendix D to answer the question. Round your answer to the nearest dollar. $ What would be the annual lease charge if the lessor sought to earn 8 percent? Use Appendix D to answer the question. Round your answer to the nearest dollar. $ If the equipment will have a residual value of $10,500, what lease payment will earn the lessor 10 percent? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. $
Assume a 10-year lease contract on some equipment with equal lease payments at the end of each year. The equipment would cost $200,000 to buy and would be depreciated straight-line over 10 years to a zero-salvage value. The applicable cost of debt is 10%. The lessee does not expect to owe taxes for the next 15 years while the lessor's tax rate is 21%. What is the Lessee's maximum acceptable lease payment?
Bird Wing Bedding can lease an asset for 4 years with payments of $16,000 due at the beginning of the year. The firm can borrow at a 6% rate and pays a 25% federal-plus-state tax rate. The lease qualifies as a tax-oriented lease. What is the cost of leasing?
Use the information for Escapee Company from BE21.20. Assume the same facts, except Escapee guarantees a residual value of $9,000 at the end of the lease term, which equals the expected residual value of the machinery. (a) Does this change your answer from BE21.20? (b) What if the expected residual value at the end of the lease term is $5,000 and Escapee guarantees a residual of $9,000?
The Harris Company is the lessee on a four-year lease with the following payments at the end of each year: Year 1: $ 18,500 Year 2: $ 23,500 Year 3: $ 28,500 Year 4: $ 33,500 An appropriate discount rate is 7 percentage, yielding a present value of $86,637. b-1. If the lease is a finance lease, what will be the initial value of the right-of-use asset? b-2. If the lease is a finance lease, what will be the initial value of the lease liability? b-3. If the lease is a finance lease, what will be the lease expense shown on the income statement at the end of year 1? (Leave no cells blank – be certain to enter “0” wherever required.) b-4. If the lease is a finance lease, what will be the interest expense shown on the income statement at the end of year 1? (Round your answer to the nearest dollar amount.) b-5. If the lease is a finance lease, what will be the amortization expense shown on the income statement at the end of year 1? (Round your answer to…
Firm X buys equipment for $10,000 and leases the equipment to firm A for $600 a year for four years. After four years, firm X expects to sell the asset for $11,000. What is the return that firm X earns on the lease? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest whole number. %
Ajax Capital has determined that the amount to be amortized on a security system is $240,000. What annual lease payment must Ajax (lessor) require from the lessee if the required rate of return is 18%? Assume that the lease payments will be made at the beginning of each of the 5 years of the lease agreement and that the marginal tax rate is 30%.

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