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Question - 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
5.76
Required -
(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.
Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest. How much control does the Fed have over this longer real rate?
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Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.
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