Kohlers Inc. is considering a leasing arrangement to finance some manufacturing tools that it needs for the next three years. The tools will be obsolete and worthless after three years. The firm will depreciate the cost of the tools over their three-year MACRS class life (.33, .45, .15, .07). Kohlers can borrow $4,800,000, the purchase price, at 10% and buy the tools, or it can make three equal, end-of-the-year payments of $2,100,000 each and lease them. The loan is a 3-year simple interest loan, with interest paid at the end of each year. The firm's tax rate is 40%. Annual maintenance costs associated with ownership are estimated at $240,000, but this cost would be covered by the lessor if Kohler leases. What is the net advantage to leasing (NAL), in thousands? (drop three zero's in your calculations.)
Kohlers Inc. is considering a leasing arrangement to finance some manufacturing tools that it needs for the next three years. The tools will be obsolete and worthless after three years. The firm will depreciate the cost of the tools over their three-year MACRS class life (.33, .45, .15, .07). Kohlers can borrow $4,800,000, the purchase price, at 10% and buy the tools, or it can make three equal, end-of-the-year payments of $2,100,000 each and lease them. The loan is a 3-year simple interest loan, with interest paid at the end of each year. The firm's tax rate is 40%. Annual maintenance costs associated with ownership are estimated at $240,000, but this cost would be covered by the lessor if Kohler leases. What is the net advantage to leasing (NAL), in thousands? (drop three zero's in your calculations.)
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