ADMS 4540 Study Guide - Final Guide: 0 (Year), Net Present Value, Weighted Arithmetic Mean
Document Summary
The spiderman company is trying to decide whether to lease or buy new computer- assisted spiderweb producing equipment for new spideweb designs. Spiderman has already determined that acquisition of the system has a positive npv. The system costs million and qualifies for a 25 percent cca rate. The equipment will have a million salvage value in 5 years. Spiderman"s tax rate is 30 percent, and the firm can borrow at 7. 5 percent. Company has offered to lease the spiderweb equipment to spiderman for payments of . 5 million per year. What is the maximum lease payment that would be: suppose it is estimated that the equipment will have no salvage value at the end of the lease. Solution: the forgone salvage value is a cost to the lease decision and the lost tax shield on the resale represents a gain to the lease decision.