What is the present value of an operating lease that involves payments of $5,000 per year (the end of the year)for 10 years with no possibility of purchase at the end of the lease term.Assume that the firm is in the 40% marginal tax rate and the pre-tax cost of debt for the firm is 8%?

Question

Quizplus · Accepted Answer

After-tax cost of payment: 5,000 ´ (1-.4)= 3,000
after-tax cost of debt: .08 ´ (1-.4)= .048
PV = 3,000 ´ PVIFA(4.8%,10)= 3,000 ´ 7.7972858 = 23,391.86

What Is the Present Value of an Operating Lease That