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What is the present value of the lease payments tax shield

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Reference no: EM132939369

Problem 1: A firm needs to either buy or lease $200,000 worth of equipment. The equipment has a life of 5 years after which time it will be worthless. The equipment as a CCA rate of 30% and can be leased at a cost of $38,000 per year (payments due at the beginning of each year). The corporate tax rate is 42% and the cost of debt is 10%. What is the present value of the lease payments tax shield?

Reference no: EM132939369

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