Suppose that National Waferonics has before it a proposal for a four-year financial lease. The firm constructs
Question:
Suppose that National Waferonics has before it a proposal for a four-year financial lease. The firm constructs a table like Table 17.1. The bottom line of its table shows the lease cash flows:
These flows reflect the cost of the machine, CCA tax shields, and the after-tax lease payments. Ignore salvage value. Assume the firm could borrow at 10% and faces a 30% marginal tax rate.
a. What is the value of the equivalent loan?
b. What is the value of the lease?
c. Suppose the machine's NPV under normal financing is - $5,000. Should National Waferonics invest? Should it sign the lease?
Salvage Value Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
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a The value of the equivalent loan is the present value of th...View the full answer
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