What is net advantage to leasing

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Reference no: EM131832314

NFive Inc. is considering a leasing arrangement to finance some manufacturing equipments that it needs for the next 3 years. The equipments will be obsolete and worthless after 3 years. The firm will depreciate the cost of the equipment on a straigh-line basis over their 3-year life. It can borrow $4,800,000, the purchase price, at 10% and buy the equipments, or it can make 3 equal end-of-the-year lease payments of $2,100,000 each and lease them. The loan obtained from the bank is a 3 year simple interest loan, with interest pain at the end of the year. The firm's tax rate is 40%. Annual maintenance costs associated with ownership are estimated at $240,000, but this cost would be borne by the lessoe if it leases. What is the net advantage to leasing (NAL)?

Reference no: EM131832314

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