Principles of Corporate Finance

Financial Leases

Example - cont
Greymore Bus Lines can borrow at 10%, thus the value of the lease
should be discounted at 6.5% or .10 x (1-.35). The result will tell us if
Greymore should lease or buy the bus.

( ) ( ) ( )

( ) ( ) ( )

. 70 or -$700

1.065

• 10.98
  1.065


• 13.00
  1.065


• 15.02

1.065

• 15.02
  1.065


• 17.71
  1.065


• 22.19
  1.065
  NPV lease 89.02-17.99

5 6 7

2 3 4

= −

=