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Shine Ltd is considering purchasing or leasing new equipment. If it purchases the equipment it will cost $500,000 and if it leases the equipment it will be required to pay six rentals of $115,000 each. The equipment can be depreciated over three years on a straight-line basis for tax purposes. The residual value is expected to be zero and the tax rate is 30%. Assume that rental payments are paid at the beginning of each period.

find out the NPV (approx.) of the lease relative to an equivalent loan. Assume the cost of debt after-tax is 10%. Assume that the tax savings on the lease payment occurs at the time the payment is made.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M940344

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