Question

You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a common practice with expensive high tech equipment). The scanner costs 6400000 and would be depreciated straight line to zero over six years. Because of radiation contamination, it will actually be completely valueless in six years. Assume that the tax rate is 25 percent. You can borrow at 7 percent before taxes. What would the lease payment have to be for both the lessor and the lessee to be indifferent about the lease. Break-even lease payment

Answer 1

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| 0 = a = 3 3 4 5 W 2 v 1 1* ENG 03:59 15-02-2020 26 KL247 - X fix KE KF KG KH KI KJ KK KL KM KN ko KP - 226 6400000 NOTE: PVIFA @5.25%, 6 YEARS 5.035363 COST OF SCANNER LIFE IN YEARS DEPRECIATION TAX RATE DEPRECIATION TAX SHIELD = 230 1066666.67 25% 266666.67 (1066666.67 X 25%] 231 232 233 234 BORROWING RATE AFTER TAX BORROWING RATE 7.00% 5.25% 235 236 FIRST WE WILL CALCULATE THE LEASE PAYMENT WHICH WILL SATISFY BOTH THAT IS NAL (NET ADVANTAGE OF LEASING) = 0 237 238 239 240 NAL = 0 = OCF = COST OF SCANNER - OCF X PVIFA@ 5.25%, 6 YEARS 6400000 - OCF X 5.035363 6400000/5.035363 = 1271010.69 241 242 243 244 OCF = AFTER TAX LEASE PAYMENT + DEPRECIATION TAX SHIELD 1271010.69 = AFTER TAX LEASE PAYMENT + 266666.67 AFTER TAX LEASE PAYMENT = 1004344.02 246 BEFORE TAX LEASE PAYMENT = 1339125.36 (1004344.02/(1-0.25)] 247 248 249 ANSWER THIS IS THE BREAKEVEN LEASE PAYMENT 1339125.36 ... ABNORMAL deberk MARGIN MONEY marginal tax PB ROPI APV ROSS price quote EVA MVA LEVERAGED BUY SWAP Sheet2 distress BF ... :