Question
Jeff & Bezos is a fresh groceries delivery company. Jeff & Bezos pays no income taxes. The company would like to start using high-speed low-altitude
Jeff & Bezos is a fresh groceries delivery company. Jeff & Bezos pays no income taxes. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards.
Jeff & Bezos is contemplating leasing the drones for a lease term that matches the drones' economic life. It would lease them from a different company, Nets & Flicks, that currently owns the required number of the drones. Nets & Flicks is in the 25 percent income tax rate bracket. The leasing option would cost Jeff & Bezos $1,450,000 per year for five years in pre-tax lease payments.
Instead of leasing the fleet of the drones, Jeff & Bezos is also contemplating buying them, which would cost the company $5,900,000. If the company chooses to buy them, the drones would be losing their economic value following the straight-line depreciation method during a five year period. The fleet of drones, due to their heavy usage, would have no salvage value in five years.
Both companies are in the same industry, and they have access to borrowing funds at a pre-tax rate of 8 % per year. |
The range of pre-tax lease payments between ___ (lowest) and ____ (highest) would make signing the lease agreement a profitable decision for both Jeff & Bezos and Nets & Flicks. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Both numbers should be entered as positive values.) |
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