You work as a financial analyst at WPWilly, Inc. You are evaluating how much Acme Limo...
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You work as a financial analyst at WPWilly, Inc. You are evaluating how much Acme Limo should charge a client who will lease a car for 7 years. It will cost Acme $75,000 to buy the car and the car can be depreciated on a five-year MACRS schedule. Acme Limo's pretax administrative costs including Maintenance, Insurance and Selling Cost are $10,000 per year and they occur at the beginning of each year. The after tax cost of capital is 10% and the tax rate is 25%. Lease payments are made in advance, that is, at the start of each year. The inflation rate is zero. a. How much is the depreciation in year 4? b. How much is the depreciation tax shield in year 4? c. How much is the present value of after tax administrative costs? d. What is the total present value of Depreciation tax Shield? e. What is the before tax break-even operating lease rate? f. What is the after tax break even operating lease rate? Depreciation Table for 5-year asset Year % 1 20.00% 2 32.00% 3 19.20% 4 11.52% 5 11.52% 6 5.76% You work as a financial analyst at WPWilly, Inc. You are evaluating how much Acme Limo should charge a client who will lease a car for 7 years. It will cost Acme $75,000 to buy the car and the car can be depreciated on a five-year MACRS schedule. Acme Limo's pretax administrative costs including Maintenance, Insurance and Selling Cost are $10,000 per year and they occur at the beginning of each year. The after tax cost of capital is 10% and the tax rate is 25%. Lease payments are made in advance, that is, at the start of each year. The inflation rate is zero. a. How much is the depreciation in year 4? b. How much is the depreciation tax shield in year 4? c. How much is the present value of after tax administrative costs? d. What is the total present value of Depreciation tax Shield? e. What is the before tax break-even operating lease rate? f. What is the after tax break even operating lease rate? Depreciation Table for 5-year asset Year % 1 20.00% 2 32.00% 3 19.20% 4 11.52% 5 11.52% 6 5.76%
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Answer rating: 100% (QA)
To solve the given problem well go step by step a To find the depreciation in year 4 well use the MACRS depreciation schedule According to the provide... View the full answer
Related Book For
Financial Statement Analysis
ISBN: 978-0078110962
11th edition
Authors: K. R. Subramanyam, John Wild
Posted Date:
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