A company is planning to move to a larger office and is trying to decide if the
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Question:
A company is planning to move to a larger office and is trying to decide if the new office
should be owned or leased. Cash flows for owning versus leasing are estimated as follows.
Assume that the cash flows from operations will remain level over a year holding period.
If purchased, the company will make an equity investment and finance the remainder with an
interestonly loan that has a balloon payment due in year The companys marginal
income tax rate is and the aftertax cash flow from sale of the property at the end of year
is expected to be $ What would the initial equity investment have to be to
generate a incremental rate of return on equity with owning instead of leasing?
Own Lease
Sales
Cost of goods sold
Gross income
Operating expenses:
Business
Real Estate
Lease payments
Interest
Depreciation
Taxable income
Tax
Income after tax
Plus: Depreciation
Aftertax cash flow
Answer:
Posted Date: