What would the before-tax lease payments

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Point 1: your firm will either purchase or lease a new fabricator. if purchased, the fabricator will cost $940,000 and be depreciated for tax purposes on a straight-line basis over five years. the fabricator has no residual value at the end of the five years. your firm can also lease the fabricator for five years (payments are made at the start of the year). the firm can borrow at 15% pre=tax. assume that the tax deductibility benefit of the lease payments ocurs at the time the lease payments are made.

Question a) if the firms corporate tax rate is 40%, what would the before-tax lease payments have to be to make your firm indifferent between leasing and buying the fabricator?

Question b) pretend now that your firm pays no taxes, but all other details are as given above. suppose the lessor has set the lease payment at $230,000. what would be the NAL (net advantage of leasing) for your firm

Reference no: EM132485892

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