Your firm is considering leasing a new robotic milling control system.The lease lasts for 5 years.The lease calls for 6 payments of £300,000 per year with the first payment occurring at lease inception.The black box would cost £1,050,000 to buy and would be straight-line depreciated to a zero salvage.The actual salvage value is zero.The firm can borrow at 8%,and the corporate tax rate is 34%. What is the minimum lease payment that the lessor would be willing to accept?

Question

Quizplus · Accepted Answer

The minimum lease payment is calculated by considering the cost of purchasing the asset, the tax shield from depreciation, and the cost of borrowing. The lessor would want to cover the cost of the asset and earn a return equivalent to the borrowing rate. The calculation involves finding the present value of the lease payments and comparing it to the present value of the cost of the asset minus the tax shield.

Your Firm Is Considering Leasing a New Robotic Milling Control