Use the table for the question(s)below.
Your firm is a lessor that is planning to buy some new equipment and offer it to another firm through a lease arrangement.You have calculated the above cash flows for a potential lease you might offer.
-If your firm's borrowing cost is 8% and the tax rate is 30%,what is the NPV of buying and leasing?
A)$20,479
B)$5,422
C)-$2,676
D)-$5,422
E)$2,676

Question

Use the table for the question(s)below.
  Your firm is a lessor that is planning to buy some new equipment and offer it to another firm through a lease arrangement.You have calculated the above cash flows for a potential lease you might offer.
-If your firm's borrowing cost is 8% and the tax rate is 30%,what is the NPV of buying and leasing?
A)$20,479 
B)$5,422 
C)-$2,676 
D)-$5,422 
E)$2,676

Quizplus · Accepted Answer

The NPV of buying and leasing is calculated by considering the after-tax cost of borrowing. The after-tax borrowing cost is 8% * (1 - 0.30) = 5.6%. Using this rate, the NPV is $5,422.

Use the Table for the Question(s)below