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Determine that the remainder is lease financing

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Question: An asset worth $ 100,000 is leased by the XYZ Corporation for 5 years at $30,000 per year. Lease payments are due at the end of the year. Assume that if purchased, capital cost allowances on the asset would amount to $40,000, $24,000, $ 16,000, $ 12,000, and $8,000 over 5 years. The XYZ Corporation faces a tax rate of 40 percent. What is XYZ's weighted average cost of capital if its capital structure is 65-percent common equity at an after-tax cost of 12 percent, and the remainder is lease financing?

Reference no: EM131750564

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