Jet Dry Inc. is undergoing a sale/leaseback arrangement on a piece of its
excavating equipment. The equipment (Class 38 - 30%) has a fair market value of $250,000, and currently generates $75,000 in annual revenue.
Under the leasing terms, the lease agreement will be for five years, with no
residual value at the end of the term. The annual leasing cost will be $55,000 per year.
The current UCC of the equipment is $150,000. Other assets will remain in the asset pool, and recapture will not occur as a result of the sale.
The company is subject to a corporate tax rate of 27% and achieves a 12% after-tax rate of return.
Required:
Calculate the net present value of the cash flow that will result from this
sale-and-leaseback arrangement. (Round all numbers to zero decimal points.)

Question

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The Answer of Jet Dry Inc. is undergoing a sale/leaseback arrangement on a piece of its
excavating equipment. The equipment (Class 38 - 30%) has a fair market value of $250,000, and currently generates $75,000 in annual revenue.
Under the leasing terms, the lease agreement will be for five years, with no
residual value at the end of the term. The annual leasing cost will be $55,000 per year.
The current UCC of the equipment is $150,000. Other assets will remain in the asset pool, and recapture will not occur as a result of the sale.
The company is subject to a corporate tax rate of 27% and achieves a 12% after-tax rate of return.
Required:
Calculate the net present value of the cash flow that will result from this
sale-and-leaseback arrangement. (Round all numbers to zero decimal points.)