2. Lease vs. Buy Analysis Lease Case South TX. Airlines (STL) is planning to lease a new Boeing 737 Max from a lessor in Ireland. Following are the terms of the deal Monthly Lease Rate: 0.800% of price of the aircraft

Price of A/C: $50M Life of lease: 12 Years

Return costs at end of lease: $5M STL uses a discount rate of 5% evaluate its investment decisions, and is in the 15% tax bracket

Questions Please build a 12 year analysis which shows the cashflows of this leasing arrangement ?

Calculate the NPV of this structure ?

The lessor is able to renew the lease in Year 12, at a monthly lease rate of 1.200% of the fair market value of the aircraft in 12 years FMV of Aircraft in 12 years: $20M Life of lease: 8 years

Return costs at end of lease: $3M Questions

Please extend your above analysis to 20 years showing the cash flows for the full 20 years ?

Buy Case STL can purchase the same aircraft using a bank loan. The terms of the loan are as follows:

Loan to value: 80% Life of Loan: 20 Years

Interest Rate: 6.5% Depreciation: Straight Line

Payment Frequency: Semi-Annual

Salvage Value in Year 20: $200K Questions

Please evaluate this financing structure showing all the relevant cashflows ? Calculate the NPV of this structure ?

What should STL do?