1 Financial Management 2 Leasing Data 6 Purchase price, S 7 Machine 8 Life, year
ID: 2417998 • Letter: 1
Question
1 Financial Management 2 Leasing Data 6 Purchase price, S 7 Machine 8 Life, years 9 Depreciation 1,000,000 MACRS Property class, years 12 Convention half-year 13 Additional (Bonus $179 14 Tax rate 15 Federal 16 State 17 End-of-lease options 18 Purchase price 19Fair-market, S 20 Purchase option amount 21 Selling price 22 Fair-market 23 Adm cost of selling 24 Other fees and deposits -35%) 5%) 310,010-110 26 Paid by lessee 27 Upfront one-time, S 28 Paid by owner (buyer) 29 Upfront one-time, S 30 Lease 12,500 6,250 5,000 31 Tax lease 32 Life, years TRUE 33 Frequency p.a. 12 60 No. of payments, total 35 Growth rate 36 First 30 payment periods 8.0529%) 0.6711%Explanation / Answer
Cash Flows if the Machine is Purchased Cost of Debt is assumed to be Constant as Installment Payment Details are not Provided Upfront Payment 5000 Depreciation Tax Saving Cost of Debt After Tax Cost of Debt Cash Flow Discount Factor Year 1 80000 78500 47100 -32900 0.896861 -29506.7 Year 2 128000 78500 47100 -80900 0.80436 -65072.7 Year 3 76800 78500 47100 -29700 0.721399 -21425.5 Year 4 46080 78500 47100 1020 0.646994 659.9343 Year 5 46080 78500 47100 1020 0.580264 591.8693 Year 6 23040 78500 47100 24060 0.520416 12521.21 Loan Payment at the End 1000000 520416.2 Total cash Flows if Machine is Purchased 423184.2 Total Cash Flows if Leased, Taken Payment each year to be X Upfromt Payments -18750 Lease Payments Discount Factor Amount spent to Purchase Machine/ Security Deposit Returned x 0.896860987 x 0.804359629 x 0.721398771 x 0.646994413 x 0.580264048 x 0.520416186 12500 6505.202 4.170294033 -310000 -161329 4.170294033 x -173574 Total Cash Flows=4.170294033x-173574 To Find Break even Lease Payment 4.170294x-173574=423184.2 x=143097.4 Constant Break even Lease Payments=143097.4 per year
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