What is the npv for bmi regional with the lease rate

Assignment Help Finance Basics

Reference no: EM131797463

Question: Suppose BMI Regional is considering the purchase of new airplanes to facilitate operation of new routes. In total, it plans to purchase a new airline fleet for $5.0 million. This fleet will qualify for accelerated depreciation: 20% can be expensed immediately, followed by 32%, 19.2%, 11.52%, 11.52%, and 5.76% over the next five years. However, because of the airlines's substantial loss carryforwards, BMI Regional estimates its marginal tax rate to be 10% over the next five years, so it will get very little tax benefit from the depreciation expenses. Thus BMI Regional considers leasing the airplanes instead. Suppose BMI Regional and the lessor face the same 4.5% borrowing rate, but the lessor has a 40% tax rate. For the purpose of this question, assume the fleet will be worthless after 5 years, the lease term is 5 years, and the lease qualifies as a true tax lease.

(a) What is the pre-tax lease rate for which the lessor will break even? The lease rate is $. (round to $ million, three decimals, don't enter minus)

(b) What is the free cash flow of the lease for BMI Regional? The FCF of the lease is $. (round to $ million, three decimals, don't enter minus)

(c) What is the NPV(lease-buy) for BMI Regional with this lease rate? The NPV(lease-buy) is $. (round to $ million, three decimals, if result negative, use minus sign) (d) Should BMI Regional lease or buy? BMI Regional should . (fill in "lease" or "buy")

Reference no: EM131797463

Questions Cloud

What is the balance of investments in financial services : What is the balance of Investments in Financial Services as of December 31, 2012, on the parent's balance sheet?

Bob gordon believe that technology growth : "Techno-pessimists" like Bob Gordon believe that technology growth in the future will not be as fast as it has been in the past, resulting in a lower level.

Calculate the alternative hypotheses to test davids hunch : Compute the value of the test statistic. What assumption regarding the populations is necessary to implement this step?

Consider the model of investment : Consider the model of investment in which each unit of investment costs $1. Now suppose the government offers a tax break of 5 cents per dollar invested.

What is the npv for bmi regional with the lease rate : What is the NPV(lease-buy) for BMI Regional with this lease rate? The NPV(lease-buy) is $.

Emphasis on economic growth as goal of economic policy : According to economist Herman Daly, neoclassical economics, with its emphasis on economic growth as the goal of economic policy will inevitably fail

Recording the estimated amount of equipment prior : In federal government accounting, recording the estimated amount of equipment prior to actually placing an order or entering into a contract is called a(an)

Photo for more information regarding problem : Please see the photo for more information regarding this problem. Which direction would the demand curve shift. And which statements are true?

Set up the hypotheses to test : A recent sample of 120 units of the leading product provides a mean battery life of 5 hours and 40 minutes with a standard deviation of 30 minutes.

User Account

All Pages