--%>
Assignment Help - homework help

Tax benefits of lease

FedEx would like to acquire 300 vans for its business. It can buy each van for $35,000, depreciate it completely over 5 years, and then sell it for $10,000. The tax rate of FedEx is 30%, and its cost of debt is 10%. Avis Fleet Rental will lease these vans to FedEx for a period of 5 years at the annual rate of $6,500, paid in advance. FedEx will get the tax benefits of the lease at the end of each year. Should FedEx buy or lease these vans?

E

Expert

Verified

The after-tax cost of borrowing is 10% (1 – 0.3) = 7%.

632_tax lease1.jpg

Similarly for buy option,

542_tax lease2.jpg

FedEx should lease these vans since they are only cheaper.

   Related Questions in Corporate Finance

  • Q : Strategy of Bear Spread State when

    State when markets are anticipated to go down then what is the Strategy of Bear Spread?

    		•
  • Q : Problem on maintaining dividend Jackson

    Jackson Company has 6 million shares of common stock selling at $55 each. It also has $120 million in long-term bonds with coupon 7%, selling at 90. The tax rate of Jackson is 33%. Next year its EBIT is expected to be $25 million with a standard deviation of $7 millio

    		•
  • Q : Relationship between flow to

    Is there any relationship in between the flow to shareholders and the net income?

    		•
  • Q : Who introduced put–call parity Who

    Who introduced put–call parity?

    		•
  • Q : Explain breakthroughs on

    Explain breakthroughs on low-discrepancy sequences.

    		•
  • Q : Explain modern quantitative

    Explain modern quantitative methodology for portfolio selection.

    		•
  • Q : FIN3000 Corporate Finance Task

    Task Description Length: 1000-2000 words (up to 500 words above 2000 permitted) Description: • Complete this assignment in groups of 4-5 students. • Maintain a portfolio of financial issues taken from 8 news sources. • Analyse the articles with reference to theory covered in class and highlig

    		•
  • Q : Using the DCF method Your Corp, Inc.'s

    Your Corp, Inc.'s data is as follows:Beta; 1.30Recent dividend; $.90Expected dividend growth; 7%Expected return of the market; 14%Treasury Bills are yielding; 4%Most recent stock price; $65 A] Us

    		•
  • Q : Is Capital Cash Flow identical with

    Is Capital Cash Flow identical with Free Cash Flow?

    		•
  • Q : Affect the value of the stock Is the

     Is the value of this stock dependent on how long you plan to hold it? In other words, if your planned holding period were 2 years or 5 years rather than 3 years, would this affect the value of the stock today, P0? Explain your answer.<

    		•