Carrion Luggage, Ltd. is considering leasing $50 million
June 7th, 2024
(Net advantage to leasing) Carrion Luggage, Ltd. is considering leasing $50 million worth of warehousing equipment under a lease that would require annual lease payments in arrears for five years. The net cash flows to the lessee over the term of the lease (with zero residual value) are given here. Carrion’s cost of secured debt is 11%, and its cost of capital is 14%. Carrion pays taxes at a 40% marginal rate.a. Calculate the net advantage to leasing.b. Calculate the IRR for the lease.c. Should Carrion lease, or borrow and buy?Year 0 1 2 3 4 5Net cash flow ($ millions) 50 -15 -15 -15 -15 -15