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A firm is going to acquire a new machine that costs $340,000.  The firm's corporate borrowi

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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

 

0

 

340000

 

1

 

62000

 

-40920

 

-11900

 

2

 

62000

 

-40920

 

-11900

 

3

 

62000

 

-40920...

 

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Oct 14, 2020

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