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 -