The Safety Razor Company has a large tax-loss carry-forward and does not expect to pay taxes for
Question:
The Safety Razor Company has a large tax-loss carry-forward and does not expect to pay taxes for another 10 years. The company is therefore proposing to lease $270,000 of new machinery. The lease terms consist of 8 equal lease payments prepaid annually. The lessor will take CCA on the machinery at a 35% rate and the pool will never close. The first CCA tax deduction is assumed to occur at the end of the first year. There is no salvage value at the end of the machinery’s economic life. The tax rate is 30%,and the rate of interest is 9%. Wilbur Occam, the president of Safety Razor, wants to know the minimum lease payment that the lessor is likely to accept.
Required: The minimum lease payment _________________
Principles of Corporate Finance
ISBN: 978-0072869460
7th edition
Authors: Richard A. Brealey, Stewart C. Myers