Burlington Northern Railroad Company Equipment Leasing Case Solution
Burlington Northern Railroad Company Equipment Leasing Case Solution
The director of equipment finance at Burlington Northern Railroad Company have to research if your utilized-lease proposal is suitable. The case stresses the significance of the lessee's tax status to the need for the lease and just how the thought of residual value affects its valuation for the lessee and lessor. To value the lease correctly, a student must find out the relevant cash flows and also the appropriate special discounts for individuals flows.
Excel Calculations
Depreciation ($), Tax Benefit from Depreciation ($), Interest Expense ($), Tax Benefit from Interest ($), Principal Payment ($), Total Outflow of Cash ($)
PV OF NET OUTFLOWS
Lease Payments ($), Tax Benefit from Lease Payments ($), After Tax Lease ($), Purchase at Residual Value ($), Total Cash Outflow ($)
PV of Net Cash Out flows
Questions Covered
Should the lease be regarded as an investment or financing decision?
What are the after-tax cash flows relevant to Paul Weyandt if Burlington purchases the auto racks?
What are the after-tax cash flows directly attributable to the leasing decision, and what discount rate should be used for those cash flows?
What is the net present value of leasing?
How important is BNRR’s tax status to your analysis?
How important is your estimate of the residual value to your analysis?
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