Use cash flows. Pelase show all work on excel Now that brown family decided to s
ID: 2741693 • Letter: U
Question
Use cash flows. Pelase show all work on excel
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 $240.000 per year: the first payment on the lease is due at the time the lease is undertaken (i.e., year 0). and the remaining five payments are due at the beginning of years 1-5. Brown family has a tax rate of 33% and can borrow at 10% from its bank. Should the brown family lease or purchase the equipment? What is the maximum lease payment the brown family will agree to pay?Explanation / Answer
In the circumstances, as presented purchasing decision is more worthwhile, so accordingly he will gofor the purchase of the asset.
If you will goal seek here after getting this value and setting NPV equal to the value as required to purchase value you will find the maximum lease payment is 128483$.
Purchase Year Particulars 0 1 2 3 4 5 After tax cost of Debt 6.70% Purchase cost 800000 Depriciation $133,333.33 $133,333.33 $133,333.33 $133,333.33 $133,333.33 Tax saving on depriciation 44000 44000 44000 44000 44000 Net cash inflow -800000 44000 44000 44000 44000 44000 Discount Factor After tax cost 1 0.937207123 0.878357191 0.823202616 0.771511355 0.723065937 Present Value -800000 41237.1134 38647.7164 36220.91509 33946.49962 31814.90123 Net present Value -618132.8543 Lease Year Particulars 0 1 2 3 4 5 Lease payments -240000 -240000 -240000 -240000 -240000 -240000 Tax saving 44000 44000 44000 44000 44000 Net cash inflow -240000 -284000 -284000 -284000 -284000 -284000 Discount Factor 1 0.937207123 0.878357191 0.823202616 0.771511355 0.723065937 Present value -240000 -224929.7095 -210805.7258 -197568.6278 -185162.7252 -173535.8249 Net present value ($1,154,641.62)Related Questions
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