Look again at the bus lease described in Table 26.2. a. What is the value of the
Question:
Look again at the bus lease described in Table 26.2.
a. What is the value of the lease if Greymare's marginal tax rate is Tc = .20?
b. What would the lease value be if Greymare had to use straight-line depreciation for tax purposes?
Year Cost of new bus Lost depreciation tax shield Lease payment Tax shield of lease payment Cash flow of lease +100 --4.03 -6.72 - 16.9 -7.00 -11.20 -4.03 -2.02 -16.9 -16.9 -16.9 -16.9 -16.9 -16.9 +5.92 +89.02 +5.92 +5.92 -17.99 +5.92 -22.19 +5.92 +5.92 +5.92 +5.92 - 17.71 - 13.00 -10.98
Step by Step Answer:
a b Assume the straightline depreciation is figured on the same basis as the ACRS depreci...View the full answer
Principles of Corporate Finance
ISBN: 978-0072869460
7th edition
Authors: Richard A. Brealey, Stewart C. Myers
Related Video
In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue
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