罗斯《公司理财》英文习题答案DOCchap021.doc

公司理财习题答案第二十一章Chapter 21: Leasing21.1a.Leasing can reduce uncertainty regarding the resale value of the asset that is leased.b.Leasing does not provide 100% financing although it may look as though it does. Since firms must try to maintain their optimal debt ratio, the use of lease simply displaces debt. Thus, leasing does not provide 100% financing.c.Although it is true that leasing displaces debt, empirical studies show that the companies that do a large amount of leasing also have a high debt-to-equity ratios.d.If the tax advantages of leasing were eliminated, leasing would probably disappear. The main reason for the existence of long-term leasing is the differential in the tax rates paid by the lessee and the lessor.21.2a.NPV (lease)= $250,000 - L= $250,000 - 3.9927 L= $0L = $62,614.11The lease payment is Quartza reservation price.b.Depreciation= $250,000 / 5 = $50,000 per annumDepreciation tax shield = $50,000 0.35= $17,500After-tax discount rate= 0.08 (1 - 0.35)= 0.052NPV (lease)= -$250,000 + L (1 - 0.35) + $17,500 = $0L = $62,405.09This lease payment is New Leasing Cos reservation price.c.If the lease price is greater than Quartzs reservation price, the lease is a negative NPV proposal for Quartz. Quartz would rather purchase the equipment than lease at a payment above its reservation price. Thus, the lessees reservation price is the maximum of the negotiation range.21.3Incremental cash flows from leasing instead of purchasing:Lease minus BuyYear 0Year 1 - 5Lease Lease payment-$94,200 Tax benefit of lease payment$32,970Buy (minus) Cost of machine-(-$350,000) Lost depreciation tax benefit-$350,000/5 0.35= -$24,500Total$350,000-$85,730NPV = $350,000 - $85,730 = -$102.66 $50.05 the NPV to the lessee is $0.If L $0.If L $50.05 the NPV to the lessor is $0.If L $50.05 the NPV to the lessor is $0.Both parties have positive NPV for $50.02 L $50.05.21.7a.Assume that 10% is the market-wide interest rate. The decision to buy or lease is made by looking at the incremental cash flows.Cash flows from leasing:Year012345A/T savings*$3,960$3,960$3,960$3,960$3,960Lease payment-2,100-2,100-2,100-2,100-2,100Tax benefit*714714714714714Net cash flows2,5742,5742,5742,5742,574* After tax savings on operations= $6,000 0.66= $3,960* Tax benefit = $2,100 0.34= $714Cash flows from purchasing:Year012345A/T savings*$5,940$5,940$5,940$5,940$5,940Purchase-15,000Dep tax shield*1,0201,0201,0201,0201,020Net cash flows-15,0006,9606,9606,9606,9606,960* After tax savings on operations= $9,000 0.66= $5,940* Depreciation = $15,000 / 5 = $3,000 per annum Depreciation tax shield = $3,000 0.34= $1,020Incremental cash flows from leasing vs. purchasing:Year012345Lease$2,574$2,574$2,574$2,574$2,574Purchase-15,0006,9606,9606,9606,9606,960L P15,000-4,386-4,386-4,386-4,386-4,386NPV of the incremental cash flows:The cash flows must be discounted at the after tax rate which is 6.6% = 10% 0.66.NPV= $15,000 - $4,386 = $15,000 - $4,386 (4.1445)= -$3,177.78Since the NPV of the lease-vs.-buy incremental cash flows is negative, Farmer should buy, not lease the equipment.b.As long as the company maintains its target debt-equity ratio, the answer does not depend upon the form of financing used for the direct purchase. A financial lease will displace debt regardless of the form of financing.c.The amount of displaced debt is the PV of the incremental cash flows from year one through five. PV = $4,386 (4.1445) = $18,177.7821.8Redwood:Year 0Year 1 - 6Year 7Cost of machine$420,000$0$0Lease payment-L-L$0$420,000 - L = A60.06 LL = $70,978.03American:Year 0Year 1 - 6Year 7Cost of machine-$420,000$0$0Dep tax shield$21,000$21,000A/T lease payment0.65 L0.65 L$0Value of lease= -$420,000 + $21,000 + 0.65 L + 0.65 L = -$420,000 + $21,000 (6.0243) + 4.0685 L = $0L = $72,137The negotiating range is from $72,137 to $70,978.03.21.9The decision to buy or lease is made by looking at the incremental cash flows.a.Cash flow from leasing:Year0123Lease payment-$1,200,000-$1,200,000-$1,200,000Tax benefit*420,000420,000420,000Net cash flow-$780,000-$780,000-$780,000*Tax benefit = $1,200,000 x .35 = $420,000Cash flow from purchasing:Year0123Purchase cost-$3,000,000Dep tax shield*$350,000$350,000$350,000Net cash flow-3,000,000350,000350,000350,000*Depreciation tax shield = $3,000,000 / 3 x 35% = $350,000Incremental cash flows from leasing vs. purchasing:Year0123Lease-$780,000-$780,000-$780,000Purchase (minus)$3,000,000-350,000-350,000-350,000Net cash flow$3,000,000-1,130,000-1,130,000-1,130,000After-tax discount rate= 0.12 0.65= 0.078NPV of incremental cash flows= $3,000,000 - $1,130,000 = $3,000,000 - $1,130,000 (2.5864)= $77,339.09Therefore, Wolfson should lease the mach