1. Your firm is considering leasing a radiographic x-ray machine. The lease lasts for 3 years. The lease calls for 4 payments of $25,000 per year with the first payment occurring immediately. The computer would cost $140,000 to buy and would be straight-line depreciated to a zero salvage value over 3 years. The actual salvage value is negligible. The firm can borrow by issuing debt at a rate of 12%. The corporate tax rate is 40%. What is the NPV of the lease relative to the purchase?
E. None of these For accounting purposes,
2. Which of the following conditions would automatically cause a lease to be a capital lease?
A. The lessee can purchase the asset below fair market value at the end of the lease.
B. The lease transfers ownership of the asset to the lessee by the end of the lease.
C. The lease term is more than 75% of the asset’s economic life.
D. The present value of the lease payments is more than 90% of the asset’s market value at lease inception.
E. All of these would lead to the lease being considered a capital lease. Get Finance Help Today
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