Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

SpaceXplorer is considering using a specialized high-tech equipment for its space exploration program. It will either lease or buy it, and is now trying to

image text in transcribed

SpaceXplorer is considering using a specialized high-tech equipment for its space exploration program. It will either lease or buy it, and is now trying to decide what's better. The equipment costs $8,000,000, and it would be depreciated straight-line to zero over 8 years. It will be completely valueless after that time. The firm can lease the equipment for the same number of years for $1,300,000 per year, paid at the end of each year. SpaceXplorer is in 25% tax rate bracket. SpaceXplorer can borrow at 8% annual rate before taxes. oooo Answer the following questions: MARS ROVER (a) The annual depreciation of the equipment is $ 1000000 Round to whole dollar. (b) The annual tax savings from depreciation (i.e., the tax shield) is $ 250000 Round to whole dollar. (c) The annual after-tax lease payment is $ Round to whole dollar. (d) The discount rate to be used for the leasing-versus-buying decision is %. Round to Two decimal places. Put in %, not in decimals. (e) Year 0 SpaceXplorer's incremental cash flow from leasing-rather-than-buying is $ Round to whole dollar. If negative, don't forget the minus sign! (f) Year 1, 2, ..., final year SpaceXplorer's incremental annual cash flow from leasing-rather-than-buying is $ Round to whole dollar. If negative, don't forget the minus sign! (g) SpaceXplorer 's net advantage to leasing (i.e., the net present value of leasing rather than buying) is $ Round to whole dollar. If negative, don't forget the minus sign! These additional questions below don't require any calculations, and are more general: (h) In general, if SpaceXplorer's net present value of leasing rather than buying is positive, then in order for SpaceXplorer to be indifferent between leasing and buying the lease payment would need to go Type UP or DOWN. (i) In general, if SpaceXplorer's net present value of leasing rather than buying is positive, then SpaceXplorer should (type LEASE or BUY) the equipment. (i) In general, if SpaceXplorer's net present value of leasing rather than buying is positive, then the company leasing the equipment to SpaceXplorer should want to sign such lease agreement with SpaceXplorer. This statement is FALSE.) (Type TRUE or

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_2

Step: 3

blur-text-image_3

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

Options Trading QuickStart Guide The Simplified Beginners Guide To Options Trading

Authors: Clydebank Finance

2nd Edition

1945051051, 978-1945051050

More Books

Students also viewed these Finance questions

Question

5-61. The assessor will make a determination of the tax due.

Answered: 1 week ago