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    Leasing

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    Bussines Learn
    This document contains financial information related to evaluating lease versus purchase options for equipment. It includes cash flows over multiple years, with line items for lease payments, tax benefits, depreciation tax shields, and net present values. Numerical examples are provided for costs, interest rates, tax rates and other variables to calculate costs and cash flows under the different options.

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    Leasing

    Uploaded by

    Bussines Learn
    19 views15 pages
    This document contains financial information related to evaluating lease versus purchase options for equipment. It includes cash flows over multiple years, with line items for lease payments, tax benefits, depreciation tax shields, and net present values. Numerical examples are provided for costs, interest rates, tax rates and other variables to calculate costs and cash flows under the different options.

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    21. Leasing

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    This document contains financial information related to evaluating lease versus purchase options for equipment. It includes cash flows over multiple years, with line items for lease payments, tax benefits, depreciation tax shields, and net present values. Numerical examples are provided for costs, interest rates, tax rates and other variables to calculate costs and cash flows under the different options.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    19 views15 pages

    Leasing

    Uploaded by

    Bussines Learn
    This document contains financial information related to evaluating lease versus purchase options for equipment. It includes cash flows over multiple years, with line items for lease payments, tax benefits, depreciation tax shields, and net present values. Numerical examples are provided for costs, interest rates, tax rates and other variables to calculate costs and cash flows under the different options.

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    You are on page 1of 15

    Depreciation tax shield $225,750 Scanner costs

    Aftertax lease payment $1,007,250 NPER


    OCF $1,233,000 You can lease it
    Aftertax debt cost 6.32% TaxRate
    NAL $58,646.08 Lease You can borrow

    NAL ($58,646.08)

    NAL $0 OCF $1,250,048.95


    Aftertax lease payment $1,024,298.95
    Break-even lease payment $1,296,580.95

    NAL $77,038.28

    NAL $0 PMT $1,298,259.46


    Total payment range $1,296,580.95 ~ E15

    Year:1 OCF $1,308,220 3-year MACRS


    Year:2 OCF $1,408,634 0.3333
    Year:3 OCF $1,140,984 0.4445
    Year:4 OCF $1,074,162 0.1481
    0.0741
    NAL $33,392.96
    $4,300,000
    4
    $1,275,000 per year
    21%
    8% before taxes
    Depreciation tax shield $26,250 Machine costs $625,000
    Aftertax lease payment $122,450 NPER 5
    OCF $148,700 Lease payments $155,000
    Aftertax debt cost 5.53% YTM 7%
    NAL ($9,469.25) TaxRate 21%
    a. NPER 5
    NAL $0 Costs Equipment $725,000
    PMT $186,392.03 TaxRate for Lessor 23%
    Borrow 9% Each firm
    b.
    Depreciation tax shield $33,350
    Aftertax debt cost 6.93%
    NAL $0 $0
    PMT $185,895.42

    $185,895.42 ~ $186,392.03
    Depreciation tax shield $368,760 Pretax cost savings $2,800,000
    Aftertax lease payment $1,540,500 The system costs $8,780,000
    Aftertax debt cost 5.53% NPER 5
    NAL $270,134.62 $270,134.62 TaxRate 21%
    Borrow 7%
    NAL $0.00 Lease $1,950,000
    X $1,600,493.57 Salvage Value $900,000
    Pretax lease payment $2,025,941.23 Security deposit $600,000

    NAL $0.00 Lease payment $420,000


    X $1,447,776.61 NPER 6
    Pretax lease payment $1,832,628.62 Borrow 6%
    TaxRate 21%
    NAL $128,563.07
    Asset costs $825,000
    Aftertax lease payment $331,800 NPER 3
    Aftertax interest rate 4.74% Borrow 7%
    Reduction in debt capacity $1,698,208.77 TaxRate 22%

    a.
    Depreciation tax shield $60,500
    PMT $314,181.92 ! AfterTax
    Aftertax debt cost 5.46%
    NAL $0.00
    c.
    NAL $0.00
    PMT $314,367.62
    per year

    1.For us this rate must be much greater.


    2.For us this rate must be much greater.
    per year
    a. Machine costs
    Year 0 Year 1 Year 2 Year 3 Year 4 NPER
    Lease: TaxRate
    Lease payment ($640,000) ($640,000) ($640,000) ($640,000) Loan
    Tax savings on lease $153,600 $153,600 $153,600 $153,600 Principal
    Lost dep. tax shield ($126,000) ($126,000) ($126,000) ($126,000) Interest
    Equipment cost $2,100,000 Lease
    CFO Incremental $1,613,600 -$612,400 -$612,400 -$612,400 -$126,000

    Aftertax discount rate 6.84%


    NAL -$94,942.71

    b.
    NAL $0
    PMT $605,604.52
    $2,100,000
    4
    24%
    $2,100,000
    $525,000
    9% on the outstanding balance of the loan at the beginning of each year.
    $640,000 per year are due at the beginning.
    Asset_Price $745,000
    NPER 3
    The lessor 6% Borrow
    The lessee 9% Borrow
    TaxRate 21%

    Depreciation tax shield $52,150


    Aftertax debt cost 7.11%
    NAL $0.00 $372,222.73 PMT_Min_Lessor $294,055.95
    NAL $0.00 $372,551.64 PMT_Max_Lessee $294,315.79
    Price car $49,500
    Other costs $850
    Down payment $5,000
    Salvage value $28,500 after three years
    Money factor 2400
    Lease factor 0.00185
    NPER 36
    Sales tax 7%

    APR 4.44%
    Net capitalized cost $45,350
    Depreciation charge $468.06
    Finance charge $136.62
    Taxes $42.33
    Lease payment $647.01 per month
    The annual loan payment will be: $1,298,259.46
    Purchase price $4,300,000
    Loan 8%
    NPER 4
    TaxRate 21%
    Beginning Interest Principal Ending
    Year Total payment
    balance payment payment balance
    1 $4,300,000.00 $1,298,259.46 $344,000.00 $954,259.46 $3,345,740.54
    2 $3,345,740.54 $1,298,259.46 $267,659.24 $1,030,600.22 $2,315,140.32
    3 $2,315,140.32 $1,298,259.46 $185,211.23 $1,113,048.23 $1,202,092.09
    4 $1,202,092.09 $1,298,259.46 $96,167.37 $1,202,092.09 $0

    OCF Total cash flow


    1,226,019.46 = -$6,980.54
    1,242,051.02 = $9,051.02
    1,259,365.10 = $26,365.10
    1,278,064.31 = $45,064.31

    NAL $58,646.08
    a. Cash flows from leasing:
    Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
    Aftertax savings $22,910 $22,910 $22,910 $22,910 $22,910
    Lease payment ($80,000) ($80,000) ($80,000) ($80,000) ($80,000)
    Tax benefit 16,800 16,800 16,800 16,800 16,800
    Net cash flows ($63,200) ($40,290) ($40,290) ($40,290) ($40,290) $22,910

    Cash flows from purchasing:


    Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
    Aftertax savings $25,280 $25,280 $25,280 $25,280 $25,280
    Purchase ($365,000)
    Dep. tax shield $15,330 $15,330 $15,330 $15,330 $15,330
    Net cash flows ($365,000) $40,610 $40,610 $40,610 $40,610 $40,610

    Year 0 Year 1 Year 2 Year 3 Year 4 Year 5


    Lease – Buy $301,800 -$80,900 -$80,900 -$80,900 -$80,900 -$17,700

    Aftertax discount rate 7.9%


    NAL $21,149.18

    c.
    PV $280,650.82
    Lease $80,000 due at the beginning of each year.
    NPER 5
    Save $29,000 per year through reductions in electricity costs.
    Purchase $365,000
    Save $32,000 per year through reductions in electricity costs.
    Interest 10% on the remaining balance
    Principal $73,000 for five years
    D/E 67%
    TaxRate 21%
    Price equipment $7,930,000
    Salavage value $1,020,000
    NPER 4
    Lease $1,924,000 four annual payments due at the beginning of the year.
    Security deposit $520,000
    YTM(Cost of debt) 11%
    TaxRate 21%

    Aftertax salvage value $805,800

    Year 0 Year 1 Year 2 Year 3 Year 4


    Saved purchase $7,930,000
    Lost salvage value ($805,800)
    Lost dep. tax shield ($555,044.49) ($740,225.85) ($246,630.93) ($123,398.73)
    Security deposit ($520,000) $520,000
    Lease payment ($1,924,000) ($1,924,000) ($1,924,000) ($1,924,000)
    Tax on lease payment $404,040 $404,040 $404,040 $404,040
    Cash flow from leasing $5,890,040 ($2,075,004.49) ($2,260,185.85) ($1,766,590.93) ($409,198.73)

    Aftertax cost of debt 8.69%


    NAL $398,670.47

    Lease $2,307,500
    NPER 2
    Salavage value $4,200,000
    Book value $1,762,046
    Aftertax salvage value $3,688,029.66

    Year 0 Year 1 Year 2


    Saved purchase $7,930,000
    Lost salvage value ($3,688,029.66)
    Lost dep. tax shield ($555,044.49) ($740,225.85)
    Lease payment ($2,307,500) ($2,307,500)
    Tax on lease payment $484,575 $484,575
    Cash flow from leasing $6,107,075 ($2,377,969) ($4,428,256)

    NAL $170,764.01

    PV of lease payments $4,386,328.83


    3 Years
    0.3333
    0.4445
    0.1481
    0.0741

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