Analyse the cost of renting, leasing, and purchasing an item of construction equipment under the conditions described. Evaluate total net after-tax cash flow and its present value. General assumptions Income tax rate 32% Tax saving rate 10% Purchase assumption Equipment cost for whole at once payment 150000 Salvage value after 5 years 40000 Yearly depreciation (year 1) 17% Yearly depreciation (year 2) 19% Yearly depreciation (year 3) 20% Yearly depreciation (year 4) 20% Yearly depreciation (year 5) 20% Investment credit (year 1) 10% of equipment cost Cost basis cost less half the investment credit Down payment for equipment 20% of equipment cost Loan interest (year 1) 12498 Loan interest (year 2) 8018 Loan interest (year 3) 2969 Monthly payment for purchasing (yearl to year 3) 3985 Lease assumption Term of lease (years) 5 Initial payment 5 month in advance Lease payment (monthly) 1800 Rent assumption Rental period (years) 5 Rental rate (monthly) from year 1 1900 Mid-year present worth factors for i=%8; (year 1) 0.96297 Mid-year present worth factors for i=%8; (year 2) 0.89164 Mid-year present worth factors for i=%8; (year 3) 0.82559 Mid-year present worth factors for i=%8; (year 4) 0.76443 Mid-year present worth factors for i=%8; (year 5) 0.70781 Mid-year present worth factors for i=%8; (final year) 0.68058 Purchase Cost (S) Initial Year 1 Year 2 Year 3 Year 4 Year 5 Year Final Total Payments Resale Tax at resale Tax savings - depreciation Tax savings - interest Investment credit Net Cost Present value of net cost Lease Cost (S) Initial Year 1 Year 2 Year 3 Year 4 Year 5 Final Total Payments Tax savings - payments Net cost Present value of net cost Rental Cost (S) Initial Year 1 Year 2 Year 3 Year 4 Year 5 Final Total Payments Tax savings - payments Net cost Present value of net cost Analyse the cost of renting, leasing, and purchasing an item of construction equipment under the conditions described. Evaluate total net after-tax cash flow and its present value. General assumptions Income tax rate 32% Tax saving rate 10% Purchase assumption Equipment cost for whole at once payment 150000 Salvage value after 5 years 40000 Yearly depreciation (year 1) 17% Yearly depreciation (year 2) 19% Yearly depreciation (year 3) 20% Yearly depreciation (year 4) 20% Yearly depreciation (year 5) 20% Investment credit (year 1) 10% of equipment cost Cost basis cost less half the investment credit Down payment for equipment 20% of equipment cost Loan interest (year 1) 12498 Loan interest (year 2) 8018 Loan interest (year 3) 2969 Monthly payment for purchasing (yearl to year 3) 3985 Lease assumption Term of lease (years) 5 Initial payment 5 month in advance Lease payment (monthly) 1800 Rent assumption Rental period (years) 5 Rental rate (monthly) from year 1 1900 Mid-year present worth factors for i=%8; (year 1) 0.96297 Mid-year present worth factors for i=%8; (year 2) 0.89164 Mid-year present worth factors for i=%8; (year 3) 0.82559 Mid-year present worth factors for i=%8; (year 4) 0.76443 Mid-year present worth factors for i=%8; (year 5) 0.70781 Mid-year present worth factors for i=%8; (final year) 0.68058 Purchase Cost (S) Initial Year 1 Year 2 Year 3 Year 4 Year 5 Year Final Total Payments Resale Tax at resale Tax savings - depreciation Tax savings - interest Investment credit Net Cost Present value of net cost Lease Cost (S) Initial Year 1 Year 2 Year 3 Year 4 Year 5 Final Total Payments Tax savings - payments Net cost Present value of net cost Rental Cost (S) Initial Year 1 Year 2 Year 3 Year 4 Year 5 Final Total Payments Tax savings - payments Net cost Present value of net cost
