Roxy International has a lease with payments of $750,000 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 after-tax cash outflow is the lease payment minus the tax savings from the interest portion of the lease payment. The interest portion of the lease payment is $750,000 x 40% = $300,000. The after-tax cash outflow is $750,000 - $300,000 = $450,000.

Roxy International Has a Lease with Payments of $750,000 Made