Question
Required:
(a) What is the value of the lease if Greymare’s marginal tax rate is 20%? (Round your answer to the nearest dollar amount. Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)
(b) What would the lease value be if Greymare had to use five-year straight-line depreciation for tax purposes? (Round your answer to the nearest dollar amount. Negative amount should be indicated by a minus sign.Omit the "$" sign in your response.)
Nodhead College needs a new computer. It can either buy it for $295,000 or lease it from Compulease. The lease terms require Nodhead to make six annual payments (prepaid) of $71,000. Nodhead pays no tax. Compulease pays tax at 35%. Compulease can depreciate the computer for tax purposes over five years (MACRS). The computer will have no residual value at the end of year 5. The interest rate is 6%.
Required:
(a) What is the NPV of the lease for Nodhead College? (Round your answer to the nearest dollar amount. Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)
(b) What is the NPV for Compulease? (Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)
(c) What is the overall gain from leasing? (Round your answer to the nearest dollar amount. Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)
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