Please show all work on excel. I have the correct answers given by my professor.

Question

Please show all work on excel. I have the correct answers given by my professor. I only need to see the work on excel to understand it. A number close to this will be great. Thanks!

The answers are : Buy Maximum Lease Pmt 171061

Now that brown family decided to start a business from home. But, they are considering whether to purchase or lease the new equipment which costs $800,000 as in the last question. The equipment, if purchased, will be depreciated on a straight-line basis over 6 years to a zero residual value. A leasing company is willing to lease the equipment for S240.000 per year; the first payment on the lease is due at the time the lease is undertaken (i.e, year 0). and the remaining five payments are due at the beginning of years l-5. Brown family has a tax rate of 33% and can borrow at 10% from its bank. Should the brown family lease or purchase the equipment? What is the maximum lease payment the brown family will agree to pay?

Explanation / Answer

net present cost under purchase = initial outflow - PV of tax saving on depreciation

= 800000 - ( 44000 * (1/(1+0.1)^6))

= 800000 - 191631 = 608369

net present cost under Lease = PV of future outflows

= 240000 +( (240000 - 80000)/1.1) +( (240000 - 80000)/1.1^2) +( (240000 - 80000)/1.1^3) +( (240000 - 80000)/1.1^4) +( (240000 - 80000)/1.1^5) +( ( - 80000)/1.1^6)

= 240000 + 606526 - 45158 = 801368

As the PV cost of buying is lower, it is preferred to buy ratger than to lease.

Maximum lease rental = let lease rental be 'x'

PV of future outflows = 608369

= x +( (2x/3)/1.1) +( (2x/3)/1.1^2) +( (2x/3)/1.1^3) +( (2x/3)/1.1^4) +( (2x/3)/1.1^5) +( ( - 1x/3)/1.1^6)

= 182199.00

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