Reconstruct Table as a leveraged lease, assuming that the lessor borrows $80,000, 80% of the cost of the bus, nonrecourse at an interest rate of 11%. All lease payments are devoted to debt service (interest and principal) until the loan is paid off. Assume that the bus is worth $10,000 at the end of lease. Calculate after-tax cash flows on the lessor’s equity investment of $20,000. What is the IRR of the equity cash flows? Is there more than one IRR? How would you value the lessor’s equityinvestment?

TABLE Year 0 2 3 4 6 Cost of new bus Lost depreciation tax shield +100 7.0011.206.724.03 4.03 2.02 16.9 -16.9 -16.9 6.916.916.916.916.9 Lease payment Tax shield of lease payment 5,2 5.92 +5.92 +5.92+5.92 5.92 +5 5.92 Cash flow of lease +89.0217.99 22.19 7.71-15.0215.02 13.0010.99