Net advantage to leasing, Finance Basics

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1. Biily Mays , Inc, (BMC) is interested in acquiring a 1 million pre to print and circulate its meages. The press has 8 years useful life at the end of which its expected to be 90,000. The Shamvow Leaing Inc. I willing to lease such a press t for 8 lease payments of 174,000 to made at t0 - t7 . If BMC decided to borrow the 1 million it could do so from Dole State bank for 8 years at 23.35 % . If BMC's tax rate is 40% and it uses straight -line depreciation, how would it finance the press ?

Calculate the NAL.

Question 2:

Mazza and Banks, Inc is in the process of deciding if it should purchase or lease equipment which cost 21 million. If they decide to purchase or will be by borrowing the needed amount at 13 %

Salvage expected = 1 million

life = 7 years

Dep = 30% 20% 14% 9% 9% 9% 9%

ITC = 4%

COC = 18%

Effective Tax Rate = 30.77

Lease payment = 3.9 million at t0 t1 t3 t4 t5 t6

Compute the NAL should they lease or purchase?


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