Look again at the bus lease described in Table 26.2. a. What is the value of the

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Look again at the bus lease described in Table 26.2.

a. What is the value of the lease if Greymare's marginal tax rate is Tc = .20?

b. What would the lease value be if Greymare had to use straight-line depreciation for tax purposes?

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Principles of Corporate Finance

ISBN: 978-0072869460

7th edition

Authors: Richard A. Brealey, Stewart C. Myers

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Question Posted: Jun 09, 2011 06:01 AM

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Look again at the bus lease described in Table 26.2. a. What is the value of the

Question:

Year Cost of new bus Lost depreciation tax shield Lease payment Tax shield of lease payment Cash flow of lease +100 --4.03 -6.72 - 16.9 -7.00 -11.20 -4.03 -2.02 -16.9 -16.9 -16.9 -16.9 -16.9 -16.9 +5.92 +89.02 +5.92 +5.92 -17.99 +5.92 -22.19 +5.92 +5.92 +5.92 +5.92 - 17.71 - 13.00 -10.98

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a b Assume the straightline depreciation is figured on the same basis as the ACRS depreci...View the full answer

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