A firm is going to acquire a new machine that costs $340,000. The firm's corporate borrowing rate is 9.6%. The machine can be leased for $62,000 at the end of each year for its 8-year life. If the firm leases, it gets no salvage value. If it owns, the expected salvage value is $60,000. Maintenance costs will be the same whether the firm leases or buys. The firm would use straight-line depreciation to a net book value of $60,000, its tax rate is 34%, and the cost of capital for the machine is 15%. The net advantage to leasing (NAL) is
Statement of net Advantage to lease:
Year Cost of assets Lease payments After tax lease payments
Lost depreciation tax shield
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Sep 21, 2019EXPERT
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