Use the table for the question(s)below.
Danby Construction is considering leasing a new crane for the next 5 years.Danby has created the following table of cash flows to help with the decision:

-If Danby's borrowing cost is 7%,and its tax rate is 35%,what is the amount of the lease-equivalent loan for the crane?
A)$96,747
B)$369,671
C)$348,253
D)-$363,441
E)$75,329

Question

Use the table for the question(s)below.
Danby Construction is considering leasing a new crane for the next 5 years.Danby has created the following table of cash flows to help with the decision:
 
-If Danby's borrowing cost is 7%,and its tax rate is 35%,what is the amount of the lease-equivalent loan for the crane?
A)$96,747 
B)$369,671 
C)$348,253 
D)-$363,441 
E)$75,329

Quizplus · Accepted Answer

The lease-equivalent loan amount is calculated by taking the present value of the lease payments and adjusting for the tax shield on interest. Given the borrowing cost of 7% and a tax rate of 35%, the correct calculation would lead to the lease-equivalent loan amount that matches option B, $369,671. This calculation involves discounting the future lease payments at the after-tax cost of debt, which is the borrowing cost adjusted for the tax rate.

Use the Table for the Question(s)below