Question

ACME Inc. Is evaluating a lease for a new $130,000 backhoe. Seven annual lease payments of $22,000 are due in advance. ACME Inc. has a tax rate of 26%. If it purchases the backhoe, it will be in its own 20% CCA class. The half-year rule applies, the first CCA deduction is take in year 0, and after 7 years the backhoe is worthless. The interest rate for ACME Inc. is 11%.

i) Determine the cash flows of leasing rather than purchasing the forklift for each of the seven years.

II) What are the equivalent loan and NPV of the lease?

Answer 1

Formulas Use;-

Depriciation(year-1)=C4*0.1

Depriciation(year-2)=(C4-D5)*0.2

Depriciation(Year-3)=E5*0.8 ( copy in other cells)

Lost Tax Shield in Dep=-D5*0.26(copy in other cells )

tax shield from lease payment =-C7*0.26 (copy in other cells)

cashflow from leasse=SUM(C4:C8) ( copy in other cells)

NPV=NPV(C1,D9:J9)+C9

i hope my efforts will be fruitful to you ......