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  • Principles of Corporate Finance: 6th Edition Richard A. Brealey and Stewart C. Myers

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    Greymare Bus Lines is considering whether to lease or own its buses. Leasing a $100,000 bus would result in an annual lease payment of $16,900 for 6 years, with tax savings reducing the cost. However, leasing also means losing the tax depreciation benefit of owning the bus. According to the analysis, the net present value of leasing the bus is -$710, indicating it is slightly more beneficial for Greymare to own rather than lease the bus.

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    CF Chapter No 25

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    Corporate Finance

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    Greymare Bus Lines is considering whether to lease or own its buses. Leasing a $100,000 bus would result in an annual lease payment of $16,900 for 6 years, with tax savings reducing the cost. However, leasing also means losing the tax depreciation benefit of owning the bus. According to the analysis, the net present value of leasing the bus is -$710, indicating it is slightly more beneficial for Greymare to own rather than lease the bus.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLS, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    40 views2 pages

    Principles of Corporate Finance: 6th Edition Richard A. Brealey and Stewart C. Myers

    Uploaded by

    s m tayyab
    Greymare Bus Lines is considering whether to lease or own its buses. Leasing a $100,000 bus would result in an annual lease payment of $16,900 for 6 years, with tax savings reducing the cost. However, leasing also means losing the tax depreciation benefit of owning the bus. According to the analysis, the net present value of leasing the bus is -$710, indicating it is slightly more beneficial for Greymare to own rather than lease the bus.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLS, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 2

    PRINCIPLES OF CORPORATE FINANCE

    6th Edition RICHARD A. BREALEY AND STEWART C. MYERS Chapter 25 Leasing

    Lease Net Present Value Greymare Bus Lines has always owned its own vehicles, and you -- as president Thomas Pierce III -- are now reconsidering that policy. Table 25-2 shows the direct cash-flow consequences of signing a contract to lease a bus costing $100,000.

    Input Data: Cash-flow consequences of the lease contract offered to Greymare Bus Lines: Year In thousands: 0 1 2 3 4 5 6 Cost of new bus 100.00 Lost depreciation tax shield -7.00 -11.20 -6.72 -4.03 -4.03 -2.02 Lease payment -16.90 -16.90 -16.90 -16.90 -16.90 -16.90 -16.90 Tax shield of lease payment 5.92 5.92 5.92 5.92 5.92 5.92 5.92 Cash flow of lease 89.02 -17.99 -22.19 -17.71 -15.02 -15.02 -13.00 PV factor Output: NPV lease 1.065 7 0.00 -16.90 5.92 -10.98

    -0.710

    or

    -$710

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