You are the manager of a sales division.You are considering leasing a fleet of cars for your staff.You can buy the cars for $300,000 or you can lease them for 8 years at $60,000 per end of year.The company faces a tax rate of 40 percent and a CCA rate of 10 percent on vehicles.If the company buys the cars and finances the purchase with a loan,they will pay 7 percent in interest.Assume that after the term of the lease is over,the salvage value of the cars will be zero.What is the NPV of the lease?
A) $217,196
B) $59,610
C) -$23,194
D) -$240,390

Question

Quizplus · Accepted Answer

PV of depreciation tax shield: 11ea8229_346e_5f52_bbd8_4938039800c3_TB1726_00 PV of after-tax lease payments: N=8,PMT = $60,000(1−.4),I =7%*(1-.4).PV = $240,390
NPV of lease = 300,000 - 82,804 − 240,390
300,000 −82,804 - 240,390 = −$23,194

You Are the Manager of a Sales Division