What after-tax rate of return will bank earn on the lease

Assignment Help Financial Management

Reference no: EM13926798

The First National Bank of Springer has established a leasing subsidiary. A local firm, Allied Business Machines, has approached the bank to arrange lease financing for $10 million in new machinery. The economic life of the machinery is estimated to be 20 years. The estimated salvage value at the end of the 20-year period is $0. Allied Business Machines has indicated a willingness to pay the bank $1 million per year at the end of each year for 20 years under the terms of a financial lease.

a. If the bank depreciates the machinery on a straight-line basis over 20 years to a $0 estimated salvage value and has a 40 percent marginal tax rate, what after-tax rate of return will the bank earn on the lease?

b. In general, what effect would the use of MACRS depreciation by the bank have on the rate of return it earns from the lease?

Reference no: EM13926798

Questions Cloud

Discuss the changes in reporting requirements rsi : There are approximately six major requirements outlined in GASB-34 - one of these is "Required Supplementary Information" (RSI). Describe this requirement and discuss the changes in reporting requirements RSI now requires of state and local gover..

What are the required annual beginning-of-year lease payment : Ajax desires to earn a 12 percent after-tax rate of return on this lease. What are the required annual beginning-of-year lease payments?

Determining the example of an organization : Question 1. Which of the following is an example of an organization? Question 2. In the National Football League, the promotional ads are a(n) _____ resource.

To support communications and collaboration : To support communications and collaboration, organizations make use of the IT architecture, which is defined by looking at different components. To afford communications, it is required that an IT infrastructure of people, hardware, software, and net..

What after-tax rate of return will bank earn on the lease : If the bank depreciates the machinery on a straight-line basis over 20 years to a $0 estimated salvage value and has a 40 percent marginal tax rate, what after-tax rate of return will the bank earn on the lease?

Understanding that its professional relationship : Human Service Professionals are taught to understand their client's as well as the role they play in their life professionally. The most important part of that is understanding that it is a professional relationship and should be nothing more than..

Explain the four categories of legal protections : Refer to Table 18.1 on page 629 in your textbook, and read the related text. From that information, summarize and explain the four categories of legal protections against wrongful discharge. Write a good introductory sentence to set up your essay, an..

Explain poisson distribution : No, a binomial distribution requires only two possible outcomes for each experimental unit sampled.

Show that every automorphism of a tree : Let T be a set of subtrees of a tree T, and k ∈ N.Show that every automorphism of a tree fixes a vertex or an edge. Prove or disprove that every connected graph contains a walk that traverses each of its edges exactly once in each direction.

User Account

All Pages