these flows reflect the cost of the machine cca tax shields and the after tax lease 552428
Lease Valuation. Suppose that National Waferonics has before it a proposal for a four’ year financial lease.
The firm constructs a table like Table . The bottom line of its table shows the lease cash flows:
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these flows reflect the cost of the machine cca tax shields and the after tax lease 552428
For $10/Page 0nly
|
year |
0 |
1 |
2 |
3 |
|
Lease cash flow |
+62,000 |
-26,800 |
-22,200 |
-17,600 |
These flows reflect the cost of the machine, CCA tax shields, and the after-tax lease payments. Ignore salvage value. Assume the firm could borrow at 10 percent and faces a 30 percent 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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