operating lease payment

You work as a financial analyst for RBC. Your company is considering buying an airplane and then lease it to Delta Air Lines. Your task is to determine the before tax leasing payment

You may choose an airplane of your choice (747, 767, 777, 787) Assume 20 year depreciation period in your lease analysis. Make your assumptions about tax rate, required rate of return, insurance cost, maintenance and operating costs, plane cost, and salvage value.

Use the below example for reference and help, please show your work, please show your formulas.

Example

Acme Limo has a client who will sign a lease a car for 7 years, with lease payments due at the start of each year. The car last for six years and can be depreciated on a five-year MACRS schedule. Maintenance, Insurance, Selling Cost is $12,000 per year. The tax rate is 35% for Acme. The following table shows the NPV of the limo if Acme purchases the new limo for $75,000 and leases it our for 7 years.

T= 0 1 2 3 4 5 6

Initial Cost -75

Maintenance, -12 -12

Tax saving 4.2(.35*12) 4.2

DepTax Saving 0 5.25 (.20*75*.35)

Total -82.8 -2.55 .6 -2.76 -4.78 -4.78 -6.29

At 7% discount rate, NPV=-98.15

Break even Rent?

Using a financial calculator, PMT(PV=-98.15, r=7%,n=7, beginning Yr)=17.02

How much do I have to receive before tax so that I will have $17.02 after tax?

Xbefore tax leasing charge

Tax at 35% -- .35X

After tax X-.35X=X(1-.35)

After Tax leasing payment =17.02

X(1-.35)=17.02

.65X=17.02

X=17.02/.65=26.18

Year	3 years	5 years	7 years	10 years	15 years	20 years
1	33.33%	20.00%	14.29%	10.00%	5.00%	3.75%
2	44.45%	32.00%	24.49%	18.00%	9.50%	7.22%
3	14.81%	19.20%	17.49%	14.40%	8.55%	6.68%
4	7.41%	11.52%	12.49%	11.52%	7.70%	6.18%
5		11.52%	8.93%	9.22%	6.93%	5.71%
6		5.76%	8.92%	7.37%	6.23%	5.29%
7			8.93%	6.55%	5.90%	4.89%
8			4.46%	6.55%	5.90%	4.52%
9				6.56%	5.91%	4.46%
10				6.55%	5.90%	4.46%
11				3.28%	5.91%	4.46%
12					5.90%	4.46%
13					5.91%	4.46%
14					5.90%	4.46%
15					5.91%	4.46%
16					2.95%	4.46%
17						4.46%
18						4.46%
19						4.46%
20						4.46%
21						2.23%