Firm A is considering leasing an equipment. The equipment will provide $2.8 million in annual...
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Accounting
- Firm A is considering leasing an equipment. The equipment will provide $2.8 million in annual pre-tax cost savings. The cost of leasing is $8.78 million and the equipment will be depreciated straight-line to zero over five years. Assume a tax rate of 21% and a borrowing rate of 7%. Firm B has offered to lease this equipment for payments of $1.95 million per year. Assume that payments for the lease is made at the start of the year.
- What is the maximum lease payment that would be acceptable to Firm A?
- Suppose now Firm B requires Firm A to pay a $600,000 security deposit at the inception of the lease, and this amount is refunded at the end of the lease. If the lease payment is still $1.95 million. Is it advantageous for Firm A to lease the equipment now?
- What is the maximum lease payment that would be acceptable to Firm A?
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