How would the initial break-even operating lease rate change if rapid technological change in limo manufacturing reduces the costs of new limos by 5% per year? 12. Suppose that National Waferonics has before it a proposal for a four-year financial lease. The bottom line of its table shows the lease cash flows:
| Year 0 Don't use plagiarized sources. Get Your Custom Essay on how would the initial break even operating lease rate change if rapid technological 552573 For $10/Page 0nly | Year 1 | Year 2 | Year 3 | |
| Lease cash flow | +62,000 | -26,800 | -22,200 | -17,600 |
These flows reflect the cost of the machine, depreciation tax shields, and the after-tax lease payments. Ignore salvage value. Assume the firm could borrow at 10% and faces a 35% marginal tax rate.
a. What is the value of the equivalent loan?
b. What is the value of the lease?
c. Suppose the machine’s NPV under normal financing is -$5,000. Should National Waferonics invest? Should it sign the lease?
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