Lorenzo Airlines needs a new plane. It can be purchased for $150million; or it can be leased
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Lorenzo Airlines needs a new plane. It can be purchased for $150million; or it can be leased for 10 years at $20million per year payable in advance. Lorenzo's tax rate is 30 percent and it can borrow on a secured basis at 12% before tax. The required (after tax) rate of return on projects of comparable risk is 16%. Aircraft are depreciated on a straight line basis to a zero residual value over 10 years. Since regulations require that planes be grounded after 10 years the actual residual value is negligible.
The appropriate discount rate to Calculate the NPV of the lease versus buy decision?
Related Book For
Foundations of Finance The Logic and Practice of Financial Management
ISBN: 978-0132994873
8th edition
Authors: Arthur J. Keown, John D. Martin, J. William Petty
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