Bev's Beverages is negotiating a lease on a new piece of equipment that would cost $74,000 if purchased. The equipment falls into the MACRS 3-year class, and it would be used for 3 years and then sold, because the firm plans to move to a new facility at that time. The estimated value of the equipment after 3 years is $32,500. A maintenance contract on the equipment would cost $3,100 per year, payable at the beginning of cach year. Alternatively, the firm could lease the equipment for 3 years for a lease payment of $18,600 per year, payable at the beginning of each year. The lease would include maintenance. The firm is in the 20% tax bracket, and it could obtain a 3-year simple interest loan, interest payable at the end of the year, to purchase the equipment at a before-tax cost of 9.4%. If there is a positive Net Advantage to Leasing, then the firm will lease the equipment. Otherwise, the firm will buy it. What is the NAL? (Note: MACRS rates for Years 1 to 4 are 0.33, 0.45, 0.15, and 0.07.)Do not round your intermediate calculations. a) s4,126 b) s6,876 c) s5,501 d) $4,951 e) $6,051

Bev's Beverages is negotiating a lease on a new piece of equipment that would cost $74,000 if purchased. The equipment falls into the MACRS 3-year class, and it would be used for 3 years and then sold, because the firm plans to move to a new facility at that time. The estimated value of the equipment after 3 years is $32,500. A maintenance contract on the equipment would cost $3,100 per year, payable at the beginning of cach year. Alternatively, the firm could lease the equipment for 3 years for a lease payment of $18,600 per year, payable at the beginning of each year. The lease would include maintenance. The firm is in the 20% tax bracket, and it could obtain a 3-year simple interest loan, interest payable at the end of the year, to purchase the equipment at a before-tax cost of 9.4%. If there is a positive Net Advantage to Leasing, then the firm will lease the equipment. Otherwise, the firm will buy it. What is the NAL? (Note: MACRS rates for Years 1 to 4 are 0.33, 0.45, 0.15, and 0.07.)Do not round your intermediate calculations. a) s4,126 b) s6,876 c) s5,501 d) $4,951 e) $6,051

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 2P

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