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The lost salvage value represents a loss to the lease decision, while the lost tax shield on the resale represents a benefit. Furthermore, since there
The lost salvage value represents a loss to the lease decision, while the lost tax shield on the resale represents a benefit. Furthermore, since there is ambiguity associated with the salvage value at year 0, it is not a debt-like cash flow. Nonetheless, although a higher discount rate might be sufficient, we'll discount the residual value using the after-tax cost of debt, as is normal in practice. We'll also expect payments at the start of the year
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