Your company needs to acquire a new heavy-duty truck, as shown in the picture below, to haul equipment and supplies to the new LNG terminal being built at Kitimat, BC. The tractor and trailer costs $240,000. Your options are to borrow at an interest rate of 8% (pre-tax) or lease the unit. Neither option will affect revenue. If you lease, the lease payments are $40,000 per year, payable at the beginning of each year, for eight years. If you buy the truck and trailer, you will use a CcA rate of 30%, using the Accelerated Investment Incentive. Initially, assume that both firms have a tax rate of 40%. Assume that if you buy the asset, you will keep it to infinity and not close out the asset class. Under these circumstances, what is the PV of the tax shield from CCA, using the Accelerated Investment Incentive Method? $84,654$65.487$70,526$81,998$75,412 If the truck is not sold once obsolete (the asset pool remains open and CCA is computed out to infinity), should you lease or buy the unit? What is the NAL? Buy: NAL is - $13,543 Buy: NAL is $1,831 -ease: NAL is $1,831 Lease: NAL is - $13,543 What is the NPV of the lease to the lessor? $1,831 $1,831 $13,543 $13,543 At what annual lease payment do the lessee and the lessor both breakeven? $35,258 $35,927 $34,887 A breakeven payment does not exist $36,793 If the asset pool is closed at the end of eight years and you take a terminal loss at the end of year 8 equal to the undepreciated capital cost, what happens to the NAL to both the lessee and the lessor, assuming they both have a 40% tax rate? VAL to the Lessee becomes $16,556 NAL to the Lessor becomes $16,556 NAL to the Lessee becomes +$16,556 NAL to the Lessor becomes +$16,556 a. and d. above are true If the lessee has a zero percent tax rate, what is the maximum lease payment the lessee will be willing to make: $36,793 $39,669 $40,000 $38,670 $37,884 If the lessee has a zero percent tax rate, what is the maximum lease payment the lessee will be willing to make: $36,793$39,669$40,000$38,670$37,884 If the lessor has a 40% tax rate, what is the minimum annual lease payment the lessor will accept? $36,793$37,884$38,670$39,669$40,000 Your company needs to acquire a new heavy-duty truck, as shown in the picture below, to haul equipment and supplies to the new LNG terminal being built at Kitimat, BC. The tractor and trailer costs $240,000. Your options are to borrow at an interest rate of 8% (pre-tax) or lease the unit. Neither option will affect revenue. If you lease, the lease payments are $40,000 per year, payable at the beginning of each year, for eight years. If you buy the truck and trailer, you will use a CcA rate of 30%, using the Accelerated Investment Incentive. Initially, assume that both firms have a tax rate of 40%. Assume that if you buy the asset, you will keep it to infinity and not close out the asset class. Under these circumstances, what is the PV of the tax shield from CCA, using the Accelerated Investment Incentive Method? $84,654$65.487$70,526$81,998$75,412 If the truck is not sold once obsolete (the asset pool remains open and CCA is computed out to infinity), should you lease or buy the unit? What is the NAL? Buy: NAL is - $13,543 Buy: NAL is $1,831 -ease: NAL is $1,831 Lease: NAL is - $13,543 What is the NPV of the lease to the lessor? $1,831 $1,831 $13,543 $13,543 At what annual lease payment do the lessee and the lessor both breakeven? $35,258 $35,927 $34,887 A breakeven payment does not exist $36,793 If the asset pool is closed at the end of eight years and you take a terminal loss at the end of year 8 equal to the undepreciated capital cost, what happens to the NAL to both the lessee and the lessor, assuming they both have a 40% tax rate? VAL to the Lessee becomes $16,556 NAL to the Lessor becomes $16,556 NAL to the Lessee becomes +$16,556 NAL to the Lessor becomes +$16,556 a. and d. above are true If the lessee has a zero percent tax rate, what is the maximum lease payment the lessee will be willing to make: $36,793 $39,669 $40,000 $38,670 $37,884 If the lessee has a zero percent tax rate, what is the maximum lease payment the lessee will be willing to make: $36,793$39,669$40,000$38,670$37,884 If the lessor has a 40% tax rate, what is the minimum annual lease payment the lessor will accept? $36,793$37,884$38,670$39,669$40,000
