Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Jeff & Bezos is a fresh groceries delivery company. They have access to borrowing funds at a pre - tax rate of 6 % per

Jeff & Bezos is a fresh groceries delivery company. They have access to borrowing funds at a pre-tax rate of 6% 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. 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 own the
required number of the drones. Instead of leasing the fleet of the drones, Jeff & Bezos is also contemplating buying them, which would cost the company $4,500,000. If the
company chooses to buy them, the drones would be losing their economic value following the straight-line depreciation method during a three year period. The fleet of
drones, due to their heavy usage, would have no salvage value in three years.
Calculate the pre-tax lease payment that would make both Jeff & Bezos and Nets & Flicks indifferent between entering the lease agreement and walking away from it.(Do not round intermediate calculations and round your answer to 2 decimal places, e.g.,32.16. Your answer should be typed as a positive value.) Break-even lease payment =
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored 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

Principles Of Corporate Finance

Authors: Richard Brealey

10th Global Edition

0071314172, 9780071314176

More Books

Students also viewed these Finance questions

Question

=+What do you want them to think?

Answered: 1 week ago

Question

=+Why should they buy this product/service?

Answered: 1 week ago