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What is the after-tax cash flow from leasing

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Reference no: EM132491348

Your firm is considering leasing a new robotic milling control system. The lease lasts for 5 years. The lease calls for 5 payments of $300,000 per year. The system would cost $1,050,000 to buy and would be straight-line depreciated to a zero salvage value. The actual salvage value is zero. The firm can borrow at 8%, and the corporate tax rate is 34%.

  1. What is the after-tax cash flow from leasing (relative to purchasing) in year 0?
  2. What is the after-tax cash flow from leasing (relative to purchasing) in years 1 through 5?
  3. What is the appropriate discount rate for valuing the lease?

Reference no: EM132491348

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