Positive net advantage to leasing the firm

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Reference no: EM132011077

Carmichael Cleaners needs a new steam finishing machine that costs $100,000. The company is evaluating whether it should lease or purchase the machine. The equipment falls into the MACRS 3-year class, and it would be used for 3 years and then sold, becuase the firm plans to move to a new facility at the time. The estimated value of the years is $30,000. A maintenance contract on the equipment would cost $3,000 per year, payable at the of each year. alternatively the firm could lease the equipment for3 years for a lease payment of $29,000 per 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 puchase 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? (Note: Assume MACRS rates for Years 1 to 4 are 0.3333, 0.4445, 0.1481, and 0.0741.)

Reference no: EM132011077

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