Question

In: Finance

cost of machine= 10400000,lease payment = 3050000, you can borrow at 5.2% after taxes, depreciation straight...

cost of machine= 10400000,lease payment = 3050000, you can borrow at 5.2% after taxes, depreciation straight line over four years , tax rate=35% fir the lessee abd 45 for lessor
should i buy or lease?
what is the NPV from lessors viewpoint?
what is the maximum payment and minimum payment?
should you buy or lease if machine is depreciated over 3 years MACRS(0.3333,0.4445,0.1481,0.0741)

Solutions

Expert Solution

Cost of Machine 10400000
life in years 4
Depreciation per year 2600000
Lessor point of view
lease rent 3050000
less: Depreciation 2600000
EBT 450000
less: Tax @45% 202500
EAT 247500
Add: Depreciation 2600000
CFAT 2847500
PFAT for 4years @5.2% 3.53
TOTAL PV Cashinflows 10051675
NPV -348325
MAX & MIN lease payments
Annual installment 10400000/3.53 2946175.637
End of Year Installment [email protected]% Principal oustanding loan
1 2946176 540800 2405376 7994624
2 2946176 415720 2530455 5464169
3 2946176 284137 2662039 2802130
4 2946176 144046 2802130 0
End of Year Installment Tax shield on Int & Dep @35% Cashflow PV f @5.2% Pv of cash flows
1 2946176 1099280 1846896 0.951 1756398
2 2946176 1055502 1890674 0.903 1707278
3 2946176 1009448 1936728 0.859 1663649
4 2946176 961580 1984596 0.816 1619430
Total 6746755
Max annual after tax flow if installment @ end of year
[email protected]% 3.53
Annual flow 6746755/3.53 1911262.075
After tax rate 0.65
Annual lease rent 1911262/0.65 2940403
if installment @begining of year
[email protected]% 3.713
Annual flow 6746755/3.713 1817063
Annual lease rent 1817063/0.65 2795482
Minimum lease rent will be indiferent lease rent
let R be rent
PV of lease rent 3.713R
PV of after tax benefits 3.53X0.30R 1.059R
6746756=3.713R-1.059R
R=2542109
using MCRS given 4 year rates
Auumed asset depreciated over 4 Years
loan and int remains same
End of Year Installment Depreciation Tax shield on Int & Dep @35% Cashflow PV f @5.2% Pv of cash flows
1 2946176 3466320 1402492 1543684 0.951 1468043
2 2946176 3082020 1224209 1721967 0.903 1554936
3 2946176 1540240 638532 2307644 0.859 1982266
4 2946176 770640 320140 2626036 0.816 2142845
Total 7148090
Lease rent 3050000
Year rent tax saving out flow PVAF Pv
1-4 years 3050000 1067500 1982500 3.53 6998225
jeff jeffy answered 2 years ago
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