Scribd Logo
Upload

Welcome to Scribd!

  • 31 views

    Leasing

    Uploaded by

    Hoàng Trâm
    The document compares the costs and benefits of leasing versus buying a $30,000 machine for a company over 5 years. Leasing is more beneficial with a positive NPV of $3,665.95. The minimum lease payment the lessor would accept is $7,161.70 to break even. The maximum payment the lessee could pay is $7,408.13 to break even.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Leasing

    Uploaded by

    Hoàng Trâm
    31 views2 pages
    The document compares the costs and benefits of leasing versus buying a $30,000 machine for a company over 5 years. Leasing is more beneficial with a positive NPV of $3,665.95. The minimum lease payment the lessor would accept is $7,161.70 to break even. The maximum payment the lessee could pay is $7,408.13 to break even.

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document compares the costs and benefits of leasing versus buying a $30,000 machine for a company over 5 years. Leasing is more beneficial with a positive NPV of $3,665.95. The minimum lease payment the lessor would accept is $7,161.70 to break even. The maximum payment the lessee could pay is $7,408.13 to break even.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    31 views2 pages

    Leasing

    Uploaded by

    Hoàng Trâm
    The document compares the costs and benefits of leasing versus buying a $30,000 machine for a company over 5 years. Leasing is more beneficial with a positive NPV of $3,665.95. The minimum lease payment the lessor would accept is $7,161.70 to break even. The maximum payment the lessee could pay is $7,408.13 to break even.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Lessor Lessee

    Tax rate 20% 34%


    Cost Saving 5000
    Machine Cost 30000
    Economic Life 5
    Lease Payment 6125
    Depreciation 30000/5 = 6000
    After tax
    5%
    riskless rate

     Buy Decision
    - Cost of Machine = 30000
    - After tax saving = 5000 x (1 - 34%) = 3300
    - Depreciation tax shield = 6000 x 34% = 2040
    - Total cash flow = 3300 + 2040 = 5340
     Lease Decision
    - After tax saving = 5000 x (1-34%) = 3300
    - After tax lease payment = -6125 x (1 – 34%) = -4042.5
    - Total cash flow= -4042.5 + 3300 = -742.5

     Lease instead of buy decision:

    Cash flow if Cash flow if Lease instead


    Year Present Value
    buy lease of buy
    0 -30000 - 30000 30000
    -742.5 – 5340 = -6082.5/(1+5%)1 =
    1 5340 -742.5
    -6082.5 -5792.86
    -6082.5/(1+5%)2 =
    2 5340 -742.5 -6082.5
    -5517.01
    -6082.5/(1+5%)3 =
    3 5340 -742.5 -6082.5
    -5254.29
    4 5340 -742.5 -6082.5 -6082.5/(1+5%)4 =
    5 5340 -742.5 -6082.5 -6082.5/(1+5%)5 =
    NPV 3665.95
     NPV = 3665.95 >0 => ABC should lease the machaine
     Find Lmin (Lessor)
    - Cost of machine = -30000
    - Depreciation tax shield = 6000 x (1 – 20%) = 1200
    1 1
    - Discount value = 1 +…+ = 4.3294
    ( 1+5 % ) ( 1+5 % )5
    30000 1200
     Lmin = 4.3294 (1−20 %) - 1−20 % = 7161.7
    - After tax lease payment receive = 7161.7 (1 – 20%) = 5729.36

    Year Cash Flow Present Value


    0 -30000 -30000
    6929.24/(1+5%)1 =
    1 1200 + 5729.36 = 6929.24
    6599.27
    2 6929.24 6929.24/(1+5%)2 =
    3 6929.24 6929.24/(1+5%)3 =
    4 6929.24 6929.24/(1+5%)4 =
    5 6929.24 6929.24/(1+5%)5 =
    NPV 0

     Find Lmax (Lessee)


    - Cost of machine = 30000
    - Depreciation tax shield = -6000 x (1 – 34%) = -2040
    1 1
    - Discount value = 1 +…+ = 4.3294
    ( 1+5 % ) ( 1+5 % )5
    30000 −2040
     Lmin = 4.3294 (1−34 % ) + 1−34 % = 7408.13
    - After tax lease payment receive = 7408.13 (1 – 34%) = -4889.36

    Year Cash Flow Present Value


    0 30000 30000
    -6929.24/(1+5%)1 =
    1 -2040 – 4889.36 = -6929.24
    -6599.27
    -6929.24/(1+5%)2 =
    2 -6929.24
    -5785.25
    -6929.24/(1+5%)3 = -
    3 -6929.24
    5435.57
    -6929.24/(1+5%)4 = -
    4 -6929.24
    5176.74
    5 -6929.24 -6929.24/(1+5%)5 = …
    NPV 0

    You might also like