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Please solve this question for me.Many thanks Question 4 Leasing Agate Ltd must choose between leasing or buying an indispensable machine. The machine. costs $50
Please solve this question for me.Many thanks
Question 4 Leasing Agate Ltd must choose between leasing or buying an indispensable machine. The machine. costs $50 million and will be depreciated straight-line to zero over 6 years. Agate Ltd's tax rate is 25 percent, and the firm can borrow at 6 percent. Greenstone Leasing Company has offered to lease the machine to Agate Ltd for payments of $9,400,000 at the start of each year. (Assume that tax is paid at the same time as expenditures are made.) But Greenstone Leasing Ltd also requires a security deposit of $500,000 to be paid at the start of the lease, refundable at the end. Greenstone Leasing Ltd's tax rate is 40% and it can borrow at 4 percent. Required: What is the Net Advantage to Leasing for Agate Ltd? (a) (4 marks) What is the maximum lease payment Agate Ltd would be prepared to make each year if Agate were to lease? INote that the values of inputs needed in Part (b) are substantially unchanged from what you have already calculated for use in Part (a)] (b) (2 marks) What is the minimum yearly pre-tax lease payment the Greenstone Leasing Company would accept? (c) (5 marks) Will the lease contract be signed on the basis of your findings in parts (b) and (c)? Provide a brief reason for your decision (d) (1 mark) Question 4 Leasing Agate Ltd must choose between leasing or buying an indispensable machine. The machine. costs $50 million and will be depreciated straight-line to zero over 6 years. Agate Ltd's tax rate is 25 percent, and the firm can borrow at 6 percent. Greenstone Leasing Company has offered to lease the machine to Agate Ltd for payments of $9,400,000 at the start of each year. (Assume that tax is paid at the same time as expenditures are made.) But Greenstone Leasing Ltd also requires a security deposit of $500,000 to be paid at the start of the lease, refundable at the end. Greenstone Leasing Ltd's tax rate is 40% and it can borrow at 4 percent. Required: What is the Net Advantage to Leasing for Agate Ltd? (a) (4 marks) What is the maximum lease payment Agate Ltd would be prepared to make each year if Agate were to lease? INote that the values of inputs needed in Part (b) are substantially unchanged from what you have already calculated for use in Part (a)] (b) (2 marks) What is the minimum yearly pre-tax lease payment the Greenstone Leasing Company would accept? (c) (5 marks) Will the lease contract be signed on the basis of your findings in parts (b) and (c)? Provide a brief reason for your decision (d) (1 mark) Step by Step Solution
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