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Suppose Proctor? & Gamble? (P&G) is considering purchasing $17 million in new manufacturing equipment. If it purchases the? equipment, it will depreciate it for tax purposes on a? straiht-line basis over five? years, after which the equipment will be worthless. It will also be responsible for maintenance expenses of $ 1.00 million per? year, paid in each of years 1 through 5. It can also lease the equipment under a true tax lease for ?$4.4 million per year for the five? years, in which case the lessor will provide necessary maintenance. Assume? P&G's tax rate is 30 %, its borrowing cost is 7.5 %, and that the tax deductibility benefit of the lease payments occurs at the same time as when the lease payment is made.?
a. What is the NPV associated with leasing the equipment versus borrowing and buying? it?
b. What is the? break-even lease rate-that ?is, what lease amount could? P&G pay each year and be indifferent between leasing and buying through? borrowing?
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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