Question

your firm is condering lessing a magic box. the lease lasts 3 years. the lease calls for 4 payments if 1000 per year with the first payment occuring at lease inception. the magic box would cost 3,600 to buy and would straight line depreciated to zero salvage value over 3 years. the firm can borrow 6% and the coporate tac rate is 30%. what is rhe npv of the lease

Answer 1

Solution :

The NPV of the lease is = - $ 30.47

= - $ 30.5 ( When rounded off to one decimal place )

Note :

The discount rate used in the solution is the after tax discount rate.

As per the information given in the question we have

Discount rate = 6 % ; Tax rate = 30 % = 0.30

Thus, after tax discount rate = Discount rate * ( 1 - Tax rate )

= 6 % * ( 1 - 0.30 ) = 6 % * 0.70 = 4.2 %

Please find the attached screenshot of the excel sheet containing the detailed calculation for the above solution.