COMMERCE 3FA3 Lecture Notes - Lecture 15: Tax, Tax Deduction, Cash Flow

• School: McMaster University
• Department: Commerce
• Course: COMMERCE 3FA3
• Professor: Anwar Husain

Document Summary

Lease can also be seen as a loan. They will both be positive so the lease transaction will happen: ownership goes to the highest tax rate. Today: annual lease payments, cca tax savings, salvage value. Pv of these= nal lessee pv of these = nal lessor. So if you buy an asset, in accounting you take out the depreciation. That depreciation is a tax deduction so as a result it is a tax savings. Lease: discount rate is after tac cost of debt. B. lease payments: tax deductible, start today, pv pf lp (lease payments)= (lp)(1-tc) x pv factor [pg. 185 from textbook: pv of annuity due= payments start now= ((1-(1/(1+r)n)/r))*(1+r, n= terms of lease, r= after-tax cost of debt, pv of lp= (,000)*(1-0. 3)*(1-*(1/(1+0. 0735)^5)/0. 0735))*(1+0. 0735)= ,310, negative cash low for lessee. Cca would go down because you sold it at some point not for much.