Question
1.Suppose Amazon is considering the purchase of computer servers and network infrastructure to expand its very successful business offeringcloud-based computing. Intotal, it will purchase $
1.Suppose Amazon is considering the purchase of computer servers and network infrastructure to expand its very successful business offeringcloud-based computing. Intotal, it will purchase $48.8 million in new equipment. This equipment will qualify for accelerateddepreciation: 20% can be expensedimmediately, followed by 32%, 19.2, 11.52%, 11.52%, and 5.76% over the next five years.However, because of thefirm's substantial loss carry forwards and othercredits, Amazon estimates its marginal tax rate to be 10% over the next fiveyears, so it will get very little tax benefit from the depreciation expenses.Thus, Amazon considers leasing the equipment instead. Suppose Amazon and the lessor face the same 7.6% borrowingrate, but the lessor has a 35% tax rate. For the purpose of thisquestion, assume the equipment is worthless after fiveyears, the lease term is fiveyears, and the lease qualifies as a true tax lease. a. What is the lease rate for which the lessor will breakeven? b. What is the gain to Amazon with this leaserate? c. What is the source of the gain in thistransaction?
*****IT'S 15 PARTS TO THIS Questions. I'll post each one as I received the answer.
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