Suppose procter and gamble pampg is considering purchasing, Ask an Expert

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Suppose Procter and Gamble? (P&G) is considering purchasing $18 million in new manufacturing equipment. If it purchases the? equipment, it will depreciate it on a? straight-line basis over the five? years, after which the equipment will be worthless. It will also be responsible for maintenance expenses of $1.50 million per year.? Alternatively, it can lease the equipment for $4.2 million per year for the five? years, in which case the lessor will provide necessary maintenance. Assume? P&G?s tax rate is 30% and its borrowing cost is 7.5%.

a. What is the NPV associated with leasing the equipment versus financing it with the lease equivalent? loan?

b. What is the? break-even lease rate long dash—that ?is, what lease amount could? P&G pay each year and be indifferent between leasing and financing a? purchase?

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Financial Management, Finance

Category:- Financial Management
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