Solution-What aftertax rate of return will the bank earn on

What aftertax rate of return will the bank earn on the lease

Reference no: EM131122038

The First National Bank of Springer has established a leasing subsidiary. A local firm, Allied Business Machines, has approached the bank to arrange lease financing for $10 million in new machinery. The economic life of the machinery is estimated to be 20 years. The estimated salvage value at the end of the 20-year period is $0. Allied Business Machines has indicated a willingness to pay the bank $1 million per year at the end of each year for 20 years under the terms of a financial lease.

a. If the bank depreciates the machinery on a straight-line basis over 20 years to a $0 estimated salvage value and has a 40 percent marginal tax rate, what after-tax rate of return will the bank earn on the lease?

b. In general, what effect would the use of MACRS depreciation by the bank have on the rate of return it earns from the lease?

Reference no: EM131122038

Questions Cloud

What effect would the use of accelerated depreciation : Jenkins' weighted after-tax cost of capital is 12 percent. a. Compute the net advantage to leasing. b. In general, what effect would the use of accelerated depreciation, such as MACRS, have on the answer to part a? c. What alternative, leasing or own..

The relaxation algorithm applied to a minimum cost flow : (Dealing with Infeasibility) Consider the -relaxation algorithm applied to a minimum cost flow problem with initial prices p0

Examine various theories of human development : Examine various theories of human development, describing relevant terminology, and addressing how the theory assists in the understanding of issues involved in the selected topic

Summarize the benefits and drawbacks of stress : Summarize the benefits and drawbacks of stress. Can we use stress to our advantage? Why or why not

What aftertax rate of return will the bank earn on the lease : what after-tax rate of return will the bank earn on the lease? In general, what effect would the use of MACRS depreciation by the bank have on the rate of return it earns from the lease?

Termination tolerance for transportation problems : (Termination Tolerance for Transportation Problems) Consider a transportation problem with m sources and n sinks, and integer data. Show that in order for a feasible x to be optimal it is sufficient that it satisfies -CS together with some p and ..

Essay on how we can enhance communication : Write a short essay on how we can enhance communication among people from different cultures and languages

Improved optimality condition : (Improved Optimality Condition) Consider the minimum cost flow problem, without assuming that the problem data are integer. Show that if x is feasible, and x and p satisfy -CS, then x is optimal, provided

What similarities and differences do you see : Which is linked to the text's Web site at academic.cengage.com/accounting/warren. What similarities and differences do you see?

User Account

All Pages

What aftertax rate of return will the bank earn on the lease

Reference no: EM131122038

Reference no: EM131122038

Questions Cloud

Reviews

Write a Review

Finance Basics Questions & Answers

Main features of a global mindset

Calculate the dollar cost of each of the proposed plans

Would its expected return double

Stock valuation

Find the real cost of hedging

Narrate the merits of opening more stores in same market

In situations where irr analysis and npv disagree

What is a strategic group?

At the beginning of 20x2 dahl ltd acquired 8 of the

Pe ratio wilson corporation anticipates a 10 percent growth

What is the projected net present value of the new project

Direct materials acquired during the month amounted to

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT