Explain what is the net advantage to leasing- nal

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Reference no: EM13216889

NetFive Inc is considering a leasing arrangement to finance some manufacturing equipment that it needs for the next 3 years. The equipment will be obsolete and worthless after 3 years. The firm will depreciate the cost of the equipment on a straight-line basis over the 3-year life. It can borrow $4,800,000, the purchase price, at 10% and buy the equipment, or it can make 3 equal end-of-year lease payments of $2,100,000 each and lease it. The loan obtained from the bank is a 3-year simple interest loan, with interest paid at the end of the year. The firm's tax rate is 40%. Annual maintenance costs associated with ownership are estimated at $240,000, but this cost would be borne by the lessor if it is leased. What is the net advantage to leasing (NAL)?

Reference no: EM13216889

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