Chapter 27
Problems 1-12
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Calculations in red
Answers in green
Chapter 27
Question 1-5
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Chapter 27
Question 6
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Chapter 27
Question 7
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The pretax cost savings are not relevant
in the lease versus buy decision, since the firm
will definitely use the equipment and realize
the savings regardless of the financing
choice made.
Dep. tax shield lost 639,200$
Aftertax cost of debt 5.94%
Aftertax lease payment 1,419,000$
NAL w/o lease payment 6,703,056.48$
Aftertax lease payment 1,499,608.27$
Chapter 27
Question 8
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The aftertax residual value of the asset is a
cost to the leasing decision, occurring at the
end of the project life (Year 5). Also, the
residual value is not really a debt-like cash
flow, since there is uncertainty associated
with it at year 0. Nevertheless, although a higher
discount rate may be appropriate, we’ll use the
aftertax cost of debt to discount the residual
value as is common in practice.
Dep. tax shield lost 639,200$
Aftertax cost of debt 5.94%
NAL w/o lease payment 6,028,617.50$
Aftertax lease payment 1,348,722.73$
Chapter 27
Question 9
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Chapter 27
Question 10
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Chapter 27
Question 11
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Chapter 27
Question 12
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