Net advantage to leasing the industry will lease equipment

Reference no: EM1332416

Net Advantage to Lease (NAL)

Buster's Beverages is negotiating a lease on a new piece of equipment that would cost $100,000 if purchased. The equipment falls into the MACRS 3-year class, and it would be used for 3 years and then sold, because the firm plans to move to a new facility at that time. The estimated value of the equipment after 3 years is $30,000. A maintenance contract on the equipment would cost $3,000 per year, payable at the beginning of each year. Alternatively, the firm could lease the equipment for 3 years for a lease payment of $29,000 per year, payable at the beginning of each year. The lease would include maintenance. The firm is in the 20% tax bracket, and it could obtain a 3-year simple interest loan, interest payable at the end of the year, to purchase the equipment at a before-tax cost of 10%. If there is a positive Net Advantage to Leasing the firm will lease the equipment. Otherwise, it will buy it. What is the NAL?

Reference no: EM1332416

Questions Cloud

Impact of canadian cross cultural issues on change : Evaluate the impact of Canadian cross cultural issues on change and analyze the impact of resistance to change by a US company working in Canada.

Explain the role of human resources : Explain the role of human resources (HR) in supporting a successful hospitality organization. Describe the role of HR and provide specific examples of how it can support a hospitality organization.

How to maintain different document object models : Both the Netscape/Mozilla and IE browsers maintain different document object models. Given the current era of open source, what do you think is the wisdom of maintaining two models.

Project cash flow-addition of product : All of the following are anticipated effects of the proposed project. Which of these must be included in initial project cash flow related to net working capital?

Net advantage to leasing the industry will lease equipment : If there is a positive Net Advantage to Leasing the industry will lease the equipment. Otherwise, it will buy it. What is the NAL.

Explain the benefits of internal recruitment : Who are good at interviewing and creating resumes or using social networking to find a job? It's more than getting the right message out--the job posting--we have also considered the modality for delivering that message.

Similar piece of equipment- delivered and installed : You can lease the similar piece of equipment, delivered and installed, for an all-in cost of $65,000 per year, for three years, payable at the beginning of each year.

Design a script that inputs five numbers : Write down a script that inputs five numbers and determines and outputs XHTML text that displays the number of negative numbers input, the number of positive numbers input and the number of zeros input.

Cost of forgoing cash discount : Paul Stone can get 3/15, net 65 from his suppliers. Paul would like to delay paying the suppliers as long as possible because his cash account balance is very low-An increase in current asset must be accompanied by a corresponding increase in a cur..

User Account

All Pages