Question 7 A company is considering a proposal to lease out a mining equipment. The equipment can be purchased for K500,
Posted: Sun Apr 17, 2022 7:02 pm
Question 7
A company is considering a proposal to lease out a mining
equipment. The equipment can be purchased for K500,000 and, in
turn, be leased out at K125,000 per year for 8 years with payments
occurring at the end of each year.
i. Estimate the internal rate of return for the company assuming
tax is ignored.
ii. What should be the yearly lease payment charge by the
company in order to earn 20% annual compounded rate of return
before expenses and tax?
iii. Calculate the annual lease rent to be charged to amount to
20% after tax annual compound rate of return, based on the
following assumptions: a) Tax rate is 40% b) Straight line
depreciation c) Annual expenses of K50,000 d) Salvage value of
K100,000
A company is considering a proposal to lease out a mining
equipment. The equipment can be purchased for K500,000 and, in
turn, be leased out at K125,000 per year for 8 years with payments
occurring at the end of each year.
i. Estimate the internal rate of return for the company assuming
tax is ignored.
ii. What should be the yearly lease payment charge by the
company in order to earn 20% annual compounded rate of return
before expenses and tax?
iii. Calculate the annual lease rent to be charged to amount to
20% after tax annual compound rate of return, based on the
following assumptions: a) Tax rate is 40% b) Straight line
depreciation c) Annual expenses of K50,000 d) Salvage value of
K100,000