Which of the above alternatives is the best for your company

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Solve the following problem using a spreadsheet. Your S corporation needs a specialized piece of excavating equipment to complete a project. The excavator will need to be available for three years beginning in July of this year. Your company is looking at two alternatives. The first alternative is to lease the excavator for thirty-six months. The monthly lease payment is $7,100 per month. At the end of the lease the excavator will be returned to the dealer. The lease excludes all maintenance and operational costs. The second alternative is to purchase the excavator with cash for $250,000. If your company purchases the excavator, the estimated salvage value of the excavator at the end of three years is $95,000. Gains and losses on the sale of the excavator will be treated as ordinary income. The excavator may be depreciated using the half-year convention. Your company's tax year is the same as the calendar year and its marginal tax rate is 35%. Using the net present value (cost) method, which of the above alternatives is the best for your company if your minimal acceptable rate of return (MARR) is 1.5% per month? Assume that there is sufficient taxable income to use all tax savings in the year they occur.

Reference no: EM131138680

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