Purchase Solution

Rate of return

Not what you're looking for?

Ask Custom Question

The First National Bank of Springer has established a leasing subsidiary. A local firm, Allied Business Machines, has approached the bank to arrange lease financing for 10 million in new machinery. The economic life of the machinery is estimated to be 20 years. The 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 financial lease.

(a) 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 after-tax rate of return will the bank earn on the lease?

(b) In general, what effect would the use of MACRS depreciation by the bank have on the rate of return it earns from the lease?

Please show the work preferably as an excel file.

Purchase this Solution

Solution Summary

The solution explains how to calculate the rate of return on a lease based on straight line depreciation and MACRS depreciation

Purchase this Solution


Free BrainMass Quizzes
Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

Basics of corporate finance

These questions will test you on your knowledge of finance.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Lean your Process

This quiz will help you understand the basic concepts of Lean.