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Th e First National Bank of Springer has establish...

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Th e First National Bank of Springer has established a leasing subsidiary. A local fi rm, Allied Business Machines, has approached the bank to arrange lease fi nancing for $10 million in new machinery. Th e economic life of the machinery is estimated to be 20 years. Th e estimated salvage value at the end of the 20-year period is $0. Allied Business Machines has indicated a willingness to pay the bank $1 million per year at the end of each year for 20 years under the terms of a fi nancial lease. If the bank depreciates the machinery on a straight-line basis over 20 years to a $0 estimated salvage value and has a 40 percent marginal tax rate, what aft er-tax rate of return will the bank earn on the lease? b. In general, what eff ect would the use of MACRS depreciation by the bank have on the rate of return it earns from the lease? Please the answer needs to be in excel format

 

Paper#8699 | Written in 18-Jul-2015

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