Calculate the npv of leasing for cbc and tvlease, Accounting Basics

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Calculate the npv of leasing for cbc and tvlease

Problem

CBC can either purchase the machine for $225,000 or lease it from TVLease for 12 annual lease payments (paid at the beginning of the year) of $26,000. The machine has CCA rate of 30%. The salvage value is expected to be $12,500. CBC does not have any other asset in the asset class and TVLease always has a positive UCC in the asset class. CBC and TVLease have cost of debt of 9% and 5%% respectively. TVLease pays the statutory corporate tax rate of 25% and CBC only pays 15%.

Task

1. Calculate the NPV of leasing for CBC and TVLease

2. What are the minimum and maximum annual lease payments that make leasing acceptable to both?

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Accounting Basics: Calculate the npv of leasing for cbc and tvlease

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Accounting Basics: Calculate the npv of leasing for cbc and tvlease

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