Question

You work as a financial analyst for RBC. Your company is considering buying an airplane and then lease it to Delta Air Lines. Your task is to determine the before tax leasing payment

You may choose an airplane of your choice (747, 767, 777, 787)
Assume 20 year depreciation period in your lease analysis.
Make your assumptions about tax rate, required rate of return,plane cost, salvage value, etc. Try to show your work and formulas used.

Answer 1

Lease Payment= Dep+ interest + tax

We choose an airplane 747 MRP 25000$

20 year depreciation period is in lease analysis.

The money factor is .0029, and we have assumed the residual value to be 12500$ for 20yrs

• Cost - $25,000
• Residual Value - $12,500
• Money Factor - .0029
• Term - 24 Months

The depreciation cost is actually the largest portion of your lease payment. It's easy to calculate:

• (Capitalized Cost - Residual) ÷ Term of Lease

The depriciation cost=

• ($25,000 - $12,500) ÷ 24 = $520.83

? $520.83 is monthly depreciation cost

The interest payment is calculated differently than what you would expect. The calculation is:

( Cost + Residual Value) × Money Factor

($25,000 + $12,500) × .0029 = $109

$109 is your monthly interest payment

Tax rate is assumed to be 10%

(Monthly Depreciation Cost + Interest) × Tax Rate

($109 + $520.83) × 10% = $62.983

$520.83+ $109 + $62.98 = $692.81 Monthly Lease Payment