Globetech is considering leasing a $75,000 equipment.Five annual payments of $15,000 are due in advance.Globetech's required rate of return is 9% and has a 35% tax rate.The asset is in the 25% CCA class.The half year rule applies and CCA is taken in year 0.After the fifth year, the asset becomes worthless.Determine the NPV of the lease.
$$\begin{array}{l}
\begin{array} { | c | c | c | c | c | c | c | }
\hline\text { CCA Tax Syielda }\
\hline & \mathbf { 0 } & \mathbf { 1 } & \mathbf { 2 } & \mathbf { 3 } & \mathbf { 4 } & \mathbf { 5 } \
\hline \text { UCC } & 75,000 & 65,625 & 49,219 & \mathbf { 3 6 , 9 1 4 } & \mathbf { 2 7 , 6 8 6 } & \mathbf { 2 0 , 7 6 4 } \
\hline \text { CCA } & 9,375 & 16,406 & 12,305 & 9,229 & 6,921 & \
\hline \text { CCA tax shield } & \mathbf { 3 , 2 8 1 } & 5,742 & 4,307 & \mathbf { 3 , 2 3 0 } & 2,422 & 7,267 \
\hline
\end{array}
\end{array}$$

Question

Globetech is considering leasing a $75,000 equipment.Five annual payments of $15,000 are due in advance.Globetech's required rate of return is 9% and has a 35% tax rate.The asset is in the 25% CCA class.The half year rule applies and CCA is taken in year 0.After the fifth year, the asset becomes worthless.Determine the NPV of the lease.
 $$\begin{array}{l}
\begin{array} { | c | c | c | c | c | c | c | } 
\hline\text { CCA Tax Syielda }\
\hline & \mathbf { 0 } & \mathbf { 1 } & \mathbf { 2 } & \mathbf { 3 } & \mathbf { 4 } & \mathbf { 5 } \
\hline \text { UCC } & 75,000 & 65,625 & 49,219 & \mathbf { 3 6 , 9 1 4 } & \mathbf { 2 7 , 6 8 6 } & \mathbf { 2 0 , 7 6 4 } \
\hline \text { CCA } & 9,375 & 16,406 & 12,305 & 9,229 & 6,921 & \
\hline \text { CCA tax shield } & \mathbf { 3 , 2 8 1 } & 5,742 & 4,307 & \mathbf { 3 , 2 3 0 } & 2,422 & 7,267 \
\hline
\end{array}
\end{array}$$

Quizplus · Accepted Answer

The Answer of Globetech is considering leasing a $75,000 equipment.Five annual payments of $15,000 are due in advance.Globetech's required rate of return is 9% and has a 35% tax rate.The asset is in the 25% CCA class.The half year rule applies and CCA is taken in year 0.After the fifth year, the asset becomes worthless.Determine the NPV of the lease.
 $$\begin{array}{l}
\begin{array} { | c | c | c | c | c | c | c | } 
\hline\text { CCA Tax Syielda }\
\hline & \mathbf { 0 } & \mathbf { 1 } & \mathbf { 2 } & \mathbf { 3 } & \mathbf { 4 } & \mathbf { 5 } \
\hline \text { UCC } & 75,000 & 65,625 & 49,219 & \mathbf { 3 6 , 9 1 4 } & \mathbf { 2 7 , 6 8 6 } & \mathbf { 2 0 , 7 6 4 } \
\hline \text { CCA } & 9,375 & 16,406 & 12,305 & 9,229 & 6,921 & \
\hline \text { CCA tax shield } & \mathbf { 3 , 2 8 1 } & 5,742 & 4,307 & \mathbf { 3 , 2 3 0 } & 2,422 & 7,267 \
\hline
\end{array}
\end{array}$$

Globetech Is Considering Leasing a $75,000 Equipment