What is the breakeven residual value

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Suppose Netflix is considering to purchase $5 million of equipment. This equipment will qualify for five years accelerated depreciation beginning in the same year as the capital expenditure. Netflix estimates its marginal federal and state tax rate to be 40% Suppose Netflix has a 5% borrowing rate and the lease payments beginning of each year are $0.9 million for a lease term of 5 years. The equipment can be disposed for 20% of its original value at the end of the five years.

a. For purchase, what are the depreciation, tax shield and free cash flows?

c. Compute the NAL. Should Netflix buy or lease this equipment?

d. What is the breakeven residual value?

using excel sheet to answer the question

Reference no: EM131179675

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