Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Jeff & Bezos is a fresh groceries delivery company. The company has access to borrowing funds at a pre - tax rate of 8 percent

Jeff & Bezos is a fresh groceries delivery company. The company has access to borrowing funds at a pre-tax rate of 8 percent per year. Jeff & Bezos pays income taxes using 21% tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. The required fleet of drones costs $5,000,000. If the company chooses to buy them, the drones would be losing their economic value following the straight-line depreciation method during a four year period. The fleet of drones, due to their heavy usage, would have no salvage value in four years. Instead of buying the fleet of the drones, Jeff & Bezos is also contemplating leasing them for an estimated pre-tax annual cost of $1,450,000 for four years from a different company, Nets & Flicks, that owns the required number of drones. Nets & Flicks is in the same tax bracket as Jeff & Bezos.
Calculate Nets & Flicks's (=Lessor) net advantage to leasing, a.k.a. NAL. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g.,32.16. If you got a negative answer, don't forget to put the minus sign.)
NAL =

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting Tools for Business Decision Making

Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso

5th Edition

9781118560952, 1118560957, 978-0470239803

Students also viewed these Finance questions

Question

Why are you interested in our program?

Answered: 1 week ago