Calculate the net advantage to leasing

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Reference no: EM13935168

Company A needs new equipment for a project and is deciding whether it makes more sense to lease or buy. The firm's tax rate is 40% and this project will last 5 years. If the firm leases the equipment, it will do so at an annual cost of $1.25 million per year payable at the beginning of each year, and it will be structured as a tax-oriented lease. Lease payments will cover all service and maintenance. If the firm buys the equipment, it will cost $5 million. The firm will pay for it by borrowing money from a bank at 8 percent. The asset will be depreciated using MACRS and is in the 3-year asset class. In addition, the firm will buy a service contract through the manufacturer to cover maintenance and service at an annual rate of $200,000 payable at the beginning of each year. The equipment will be able to be sold at the end of 5 years for $475,000. Calculate the net advantage to leasing (NAL).

Reference no: EM13935168

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Calculate the net advantage to leasing : Company A needs new equipment for a project and is deciding whether it makes more sense to lease or buy. The firm's tax rate is 40% and this project will last 5 years. The equipment will be able to be sold at the end of 5 years for $475,000. Calculat..

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