What is the lease rate for which the lessor will break even

Assignment Help Financial Management

Reference no: EM131445634

Suppose Microsoft is considering the purchase of computer servers and network infrastructure to facilitate its move into cloud-based computing. In total, it will purchase $48.4 million in new equipment. This equipment will qualify for accelerated depreciation: 20% can be expensed immediately, followed by 32%, 19.2%, 11.52%, 11.52%, and 5.76% over the next five years.? However, because of the firm's substantial loss carryforwards, Microsoft estimates its marginal tax rate to be 10% over the next five years, so it will get very little tax benefit from the depreciation expenses.? Thus, Microsoft considers leasing the equipment instead. Suppose Microsoft and the lessor face the same 7.9% borrowing rate, but the lessor has a 35% tax rate. For the purpose of this question, assume the equipment is worthless after five years, the lease term is five years, and the lease qualifies as a true tax lease.

a. What is the lease rate for which the lessor will break even?

b. What is the gain to Microsoft with this lease rate?

c. What is the source of the gain in this transaction?

Reference no: EM131445634

Questions Cloud

Explain how children are being raised : Explain how children are being raised and supported through the various types of households and family groupings and Recognize the relationships between respectful family and community engagement and children's social identity development.

Is it mostly of local significance or is there global impact : What do you think the public health significance of the research question in this study was? Is it mostly of local significance or is there a global impact? Explain

Describe the contributions of deming : 1. Describe the contributions of Deming, Juran, TQM, ISO 9001, and Lean Six Sigma. 2. Define each core project quality concept and explain why each is vital in planning and managing projects (hint: page 296)

How project management skills important in six sigma process : Explain why project proposals, including Six Sigma projects, must support an organization's mission and goals. How are project management skills important in the Six Sigma process?

What is the lease rate for which the lessor will break even : Suppose Microsoft is considering the purchase of computer servers and network infrastructure to facilitate its move into cloud-based computing. In total, it will purchase $48.4 million in new equipment. assume the equipment is worthless after five ye..

Find the nash equilibriam : Suppose we have a two-person matrix game that results in the following best response functions. Find the Nash equilibriam if they exist.

Predict the future of small business : Predict the future of small business. In what Industries will it be involved? What trends do you foresee? Will the failure rate go up or down? Will the importance of small business increase or decrease by the year 2020?

Define the role of standard of care and explain its role : Define the role of standard of care and explain its role in medical malpractice cases

What data can you provide about the social benefits : HRM215A- What data can you provide about the social benefits of doing this? How would you present this information to the owners? Would you try to take a stand and hire a disabled person to "break the ice"?

User Account

All Pages