Reference no: EM133033336
Question - Big Sky Hospital plans to obtain a new MRI that costs $1.5 million and has an estimated four-year useful life. It can obtain a bank loan for the entire amount and buy the MRI or it can lease the equipment. Assume that the following facts apply to the decision:
The MRI falls into the three-year class for tax depreciation, so the MACRS allowances are 0.33, 0.45,0.15, and 0.07 in Years 1 through 4, respectively.
Estimated maintenance expenses are $75,000 payable at the beginning of each year whether the MRI is leased or purchased.
Big Sky's marginal tax rate is 40 percent.
Big Sky's cost of debt is 15 percent.
If leased, the lease (rental) payments would be $400,000 payable at the end of each of the next four years.
The estimated residual (and salvage) value is $250,000.
Required -
1. What is the NAL of the lease?
2. What is the IRR of the lease?
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