Business, 18.01.2022 15:40 acontrevas1010

Part A: Why does the lessor often have higher tax rate than the lessee? Part B: The Myers Inc. is considering the purchase of a new machine for $37,000. The machine is expected to save the firm $12,800 per year

in operating costs over a 5-year period, and can be depreciated on a straight-line basis to a zero

salvage value over its life. Alternatively, the firm can lease the machine from Stuart Leasing

Company for $6,700 per year for 5 years, with the first payment due in 1 year. The Myers' tax rate

is 25% and the before-tax cost of debt is 9%. The tax rate of Stuart Leasing is 36%.

a. Using NPV analysis, should Myers lease or buy the machine?

b. Calculate the maximum lease payment that Myers can pay.

c. Calculate the break-even lease payment for Stuart Leasing.

Answers: 2

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Part A: Why does the lessor often have higher tax rate than the lessee? Part B: The Myers Inc. is...