A firm leases an asset worth $100,000 with a 40% CCA rate. The asset will last 7 years. The firm has a 48% tax rate and its kd is 10%. The annual lease payment is $18,650 due in advance.

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After tax lease payment: (1-4)*18,500=11,100 CCA tax shield = Cdt l+0.5r = 100,000* .3 * 4 1+ 0.5(.06) = 32,390 .06 +.3 r+d 1+r 1+.06 Cash flows for lessee (lease vs. buy): 1 2 3 4 5 6 Save Purch 100,000 Price A.t. Lease -11,100 -11,100-11,100-11,100-11,100-11,100-11,100 payments Total 88,900 -11,100-11,100-11,100-11,100-11,100-11,100 Тах shield Present value of shaded amounts (at 6%): -60,290 NAL = 88,900 (don't discount because happens now) - 60,290 – 32,390= of depr -3,780 After tax lease payment: (1-4)*18,500=11,100 CCA tax shield = Cdt l+0.5r = 100,000* .3 * 4 1+ 0.5(.06) = 32,390 .06 +.3 r+d 1+r 1+.06 Cash flows for lessee (lease vs. buy): 1 2 3 4 5 6 Save Purch 100,000 Price A.t. Lease -11,100 -11,100-11,100-11,100-11,100-11,100-11,100 payments Total 88,900 -11,100-11,100-11,100-11,100-11,100-11,100 Тах shield Present value of shaded amounts (at 6%): -60,290 NAL = 88,900 (don't discount because happens now) - 60,290 – 32,390= of depr -3,780

Answer rating: 100% (QA)

From Lessees perspective At 48 Tax Rate NAL is 3683 ... View the full answer