Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Wolfson Inc. is considering to lease a new computer sever that costs 1,800. The machine will be depreciated on a MACRS schedule and will be

Wolfson Inc. is considering to lease a new computer sever that costs £1,800. The machine will be depreciated on a MACRS schedule and will be worth nothing at the end of six years. Assume that the administrative costs are £150 per year paid by the leasing company from Year 0 to 6. The leasing payments are also made in advance for six years. The corporate tax rate is 35 percent and the cost of capital is 12 percent. The Depreciation Tax Shield based on Modified Accelerated Cost Recovery System (MACRS)

Year 1 2 3 4 5 6

% 20 32 19.2 11.52 11.52 5.76

 (a) How much should be the minimum lease amount to break-even?

 (b) Explain the main differences between direct leases and leveraged leases.

 (c) What is sale and lease-back and briefly explain the advantages of sale and lease-back.

 (d) Describe the main features of big-ticket leases.

Step by Step Solution

3.45 Rating (158 Votes )

There are 3 Steps involved in it

Step: 1

a The minimum lease amount to break even is calculated at follows 1 12 for 6 years 411 Therefore min... 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

Corporate Finance

Authors: Jonathan Berk and Peter DeMarzo

3rd edition

978-0132992473, 132992477, 978-0133097894

More Books

Students also viewed these Accounting questions

Question

3. Describe the role of finance and accounting in business.

Answered: 1 week ago