1. A firm can buy a machine for $900,000, takes an investment tax credit of 15%, and lease out the machine for 9 years with lease payments at the beginning of the year, how much should the minimum annual lease payments be? Assume a 5-year straight-line depreciation, zero salvage and tax rate of 40%. Assume further that it can borrow at a before tax rate of 10%.
A. $67,900
B. $80,200
C. $58,300
D. $72,900
E. $64,100
2. Refer to the above question. What would the minimum annual lease payments be if the machine can be salvaged for $200,000 at the end of the lease?
A. $67,900
B. $57,500
C. $54,200
D. $61,700
E. $49,300
3. Refer to the above question. What would the minimum annual lease payments be if the machine can be salvaged for $200,000 at the end of the lease and the after-tax required rate of return is 9%?
A. $65,800
B. $77,400
C. $71,700
D. $90,100
E. $78,400