Elon Inc. is a solar battery manufacturer. It would like to lease a specialized equipment to...

 

Transcribed Image Text:

Elon Inc. is a solar battery manufacturer. It would like to lease a specialized equipment to make the production of its batteries more efficient. Elon Inc. can lease the equipment for the term equal to its economic life from another company, Galaxy Inc., that owns it. Another option is to purchase the equipment. The equipment costs $5,400,000. If purchased, it will be fully depreciated according to the straight-line depreciation method over four years. Because the equipment would be used so much, it will be valueless in four years. Another option that Elon Inc. has is to lease the equipment for $1,540,000 per year for four years from another company, Galaxy Inc., that owns it. Elon Inc. will not pay taxes for the next several years, while Galaxy Inc. is in the 25 percent income tax rate bracket. The borrowing rate available in the market is 6 percent, pre-tax. Calculate the range of lease payments (lowest and highest) that will make signing the lease agreement profitable to both Elon Inc. and Galaxy Inc. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Both numbers should be entered as positive values.) Total payment range to Elon Inc. is a solar battery manufacturer. It would like to lease a specialized equipment to make the production of its batteries more efficient. Elon Inc. can lease the equipment for the term equal to its economic life from another company, Galaxy Inc., that owns it. Another option is to purchase the equipment. The equipment costs $5,400,000. If purchased, it will be fully depreciated according to the straight-line depreciation method over four years. Because the equipment would be used so much, it will be valueless in four years. Another option that Elon Inc. has is to lease the equipment for $1,540,000 per year for four years from another company, Galaxy Inc., that owns it. Elon Inc. will not pay taxes for the next several years, while Galaxy Inc. is in the 25 percent income tax rate bracket. The borrowing rate available in the market is 6 percent, pre-tax. Calculate the range of lease payments (lowest and highest) that will make signing the lease agreement profitable to both Elon Inc. and Galaxy Inc. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Both numbers should be entered as positive values.) Total payment range to

Answer rating: 100% (QA)

Heres how to calculate the range of lease payments that would be profitable for both Elon Inc and Ga... View the full answer