Calculate the cost of purchasing the equipment with debt

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Reference no: EM131906431

Reynolds Corporation plans to purchase equipment at a cost of $5 million. The company's tax-rate is 35 percent, the equipment's depreciation would be $1,000,000 per year for 5 years, and no salvage value is expected. If the company leased the asset on a 5-year lease, the payment would be $1,100,000 at the beginning of each year. If Reynolds borrowed and bought, the bank would charge 10 percent interest on the loan.

a. Calculate the cost of purchasing the equipment with debt.

b. Calculate the cost of leasing the equipment.

c. Calculate NAL. Should the company buy or lease the equipment? Why?

Reference no: EM131906431

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