Question

Warm-Up 17-1 (similar to) question Ilelps Nand Corp. is considering lasing new machine for $25,00 per year. The lease arrangement calls for 5yra 15 th ar citir la purchase the machine il the end of the lease for $5,000. The fimis in the 20% tax bracce. Whe: Istre present value of the lesse cutron's, Including the purchase option, if lease paymente ancriard: at the raid of rarh your ard if ihr m ax cost of cht is ex ? Tierra aile-lax lezbe zaynerlis Ruurd to the nexes dollar.

Answer 1

Post-tax cash flow = 25,000 x (1 - 26%) = 18,500

PV = CF1 / (1 + r) + CF2 / (1 + r)^2 + CF3 / (1 + r)^3 + CF4 / (1 + r)^4 + CF5 / (1 + r)^5

= 18,500 / 1.08 + 18,500 / 1.08^2 + ... + (18,500 + 5,000) / 1.08^5

= $77,268