Question: Paolo the CEO of Paola Bros Inc wants to have
Paolo, the CEO of Paola Bros Inc., wants to have a Ferrari as a company car. The Ferrari costs $1.5 million. For tax purposes, assume that the car will depreciate at a rate of $180,000 per year. In five years, the Ferrari could be sold for $800,000. The Ferrari could be leased on a five-year operating lease for $200,000 per year. The lease payment would be made at the beginning of the year. If the effective tax rate of Paolo Bros Inc. is 35 percent, and its before-tax cost of borrowing is 8 percent, should Paolo lease the Ferrari or buy it?
Answer to relevant QuestionsIn Practice Problem 24, what would the lease payment have to be for Paolo to be indifferent about whether the company buys or leases the Ferrari?Charles Zhang, the owner of a small moving company, has decided that economic conditions are perfect for him to expand his business. Such an expansion will require him to buy five new moving trucks at a total cost of ...Why is IPO under-pricing less severe in Canada than it is in the United States? What causes under-pricing?State three types of distributions of securities determined by the OSC.Michael M. specializes in buying high-risk commercial paper; his required return on these investments is 12 percent per year. He is considering buying some 60-day paper from Collingwood Corp. with a promised yield of 9 ...
Post your question