Lease vs. Buy Analysis Lease Case South TX. Airlines (STL) is planning to lease a new Boeing 737 Max from a lessor in Ireland. Following are the terms of the deal • Monthly Lease Rate: 0.800% of price of the aircraft

• Price of A/C: $50M 

• Life of lease: 12 Years

• Return costs at end of lease: $5M STL uses a discount rate of 5% evaluate its investment decisions, and is in the 15% tax bracket

Questions 

Please build a 12 year analysis which shows the cash flows of this leasing arrangement ?

Calculate the NPV of this structure ?

The lessor is able to renew the lease in Year 12, at a monthly lease rate of 1.200% of the fair market value of the aircraft in 12 years 

• FMV of Aircraft in 12 years: $20M 

• Life of lease: 8 years
• Return costs at end of lease: $3M Questions
• Please extend your above analysis to 20 years showing the cash flows for the full 20 years ?

Buy Case STL can purchase the same aircraft using a bank loan. The terms of the loan are as follows:
• Loan to value: 80%

• Life of Loan: 20 Years
• Interest Rate: 6.5%

• Depreciation: Straight Line
• Payment Frequency: Semi-Annual
• Salvage Value in Year 20: $200K Questions
• Please evaluate this financing structure showing all the relevant cash flows ?

• Calculate the NPV of this structure ?
• What should STL do?

Answer rating: 100% (QA)

Calculation of NPV 12 years cashflow Year Cash Flow Present Value Computation 0 50 50 1 48 45714 ... View the full answer