Emma International has a lease with payments of $500,000 made at the beginning of each year.If no purchase option exists,and the company is in the 40% tax bracket,what is the annual after-tax cash outflow on the lease?

Question

Quizplus · Accepted Answer

The annual after-tax cash outflow on the lease is calculated by taking the lease payment and subtracting the tax savings from the lease payment. The tax savings are calculated by multiplying the lease payment by the tax rate. Therefore, the after-tax cash outflow is $500,000 - ($500,000 * 40%) = $500,000 - $200,000 = $300,000.

Emma International Has a Lease with Payments of $500,000 Made