FIN 516 DeVry Week 5 Homework Chapter Problems

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FIN 516 DeVry Week 5 Homework Chapter Problems

FIN516

FIN 516 DeVry Week 5 Homework Chapter Problems

 

FIN 516 DeVry Week 5 Homework Chapter Problems

Problem 25-6 on Purchase Versus Lease Based on Chapter 25

Craxton Engineering will either purchase or lease a new $756,000 fabricator. If purchased, the fabricator will be depreciated on a straight-line basis over 7 years. Craxton can lease the fabricator for $130,000 per year for 7 years. Craxton’s tax rate is 35%. (Assume the fabricator has no residual value at the end of the 7 years.)

  1. a) What are the free cash flow consequences of buying the fabricator if the lease is a true tax lease?
  2. b) What are the free cash flow consequences of leasing the fabricator if the lease is a true tax lease?
  3. c) What are the incremental free cash flows of leasing versus buying?

Problem 25-7 on Purchase Versus Lease Based on Chapter 25