You are the CFO of a company.You are considering leasing photocopiers from the manufacturer instead of purchasing them for $200,000.You can borrow at 9 percent and the corporate tax rate is 35 percent.The lease payment will be $50,000 for 5 years,beginning today.At the end of the 5 years,the photocopiers will be worthless.Assume that the photocopiers can be depreciated $40,000 per year for tax purposes.What is the IRR of the lease incremental cash flows?

Question

Quizplus · Accepted Answer

Annual cash flows: Year 0: (200 - 50*.65)= 167.5,Years 1 to 4: (-50*.65 - 40*.35)= -46.5,Year 5: -40*.35=-14.IRR of cash flows: 7%

You Are the CFO of a Company