How much should the minimum annual lease payments be

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Reference no: EM132063950

If a firm can buy a machine for $80,000, takes an investment tax credit of 15%, and lease out the machine for 9 years with lease payments at the beginning of the year,

1) how much should the minimum annual lease payments be? Assume a 5-year straight-line depreciation, zero salvage and a tax rate of 35%. Assume further that it can borrow at a before-tax rate of 7%.

A $10,300

B $8,300

C $9,300

D $9,600

E $8,900

2) Refer to above question. What would the minimum annual lease payments be if the machine can be salvaged for $26400 at the end of the lease?

A $6,500

B $6,800

C $7,100

D $6,100

E $7,600 6

3) Refer to above question. What would the minimum annual lease payments be if the machine can be salvaged for $26400 at the end of the lease and the after-tax required rate of return is 5.85%?

A $7,300

B $8,100

C $8,800

D $8,000

E $7,700

Please show calculation in Excel on how to get the answers and show the function page.

Reference no: EM132063950

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