What is the break-even rate in case
Financial Management
Acme has branched out to rentals of office furniture to start-up companies.
Consider a $4,600 desk. Desks last for six years and can be depreciated on a
five-year MACRS schedule. Assume administrative costs drop to $360 per year.
The cost of capital is 9% and the tax rate is 35%. Lease payments are made in
advance, that is, at the start of each year. The inflation rate is zero.
Suppose a blue-chip company requests a six-year financial lease for a $4,600
desk. The company has just issued five-year notes at an interest rate of 6%
per year. What is the break-even rate in this case?
