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Establish range of lease payments

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T J max Company is considering an acquisition of a transport equipment that costs $250,000. The equipment has estimated economic life of 5 years. If acquired, the equipment depreciates to zero book value under the straight-line depreciation method.

  • Alternatively, T J max Co can lease the equipment from kohl's, Inc. for annual beginning of year lease payments of $80,000 for five years. T J max interest rate on its secured debt is 8% and its tax rate is 25%. kohl's interest rate is also 8%, but its tax rate is 30%.

Problem a) Should T J max Company buy or lease the equipment?

Problem b) Establish range of lease payments that will be acceptable to both t J max and kohl's

Reference no: EM132885380

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