Question
The owner of an industrial juicing machine (initial value $1 million, economic life 10 years) considers leasing it under a 7-year leasing contact at $
The owner of an industrial juicing machine (initial value $1 million, economic life 10 years) considers leasing it under a 7-year leasing contact at $ 175,000 / year. The estimated value of the machine at the end of the lease is 40% of its initial value which will be taxable at 35%. Consider an 8% cost of debt capital and 12% cost of equity capital. The juicing machine was initially acquired using external financing and own equity in equal amounts. The owner uses straight line depreciation. Calculate the present-valued profitability of this lease for the lessor.
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