Purchasing the asset requires capital cost

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Reference no: EM131339638

Calculate the NPV of an investment with the following conditions and then conclude which one is better.

Purchase the Asset: purchasing the asset requires capital cost of 400,000 (at time 0) and can be depreciated based on MACRS 7 year life depreciation with the half year convention over eight years ( 0 to 7 ). And the salvage value will be $100,000 at the end of the 7th year.

Lease (operating lease): The asset can be leased for 7 years at annual operating lease payments (LP) of 75,000 ( year 1 to 7 )

The asset would yield the annual revenue of 150,000 and operating cost of 40,000 for 7 years

Considering income tax of 40% and minimum ROR of 6% calculate the ATCF and NPV for both alternative and decide which is better.

Reference no: EM131339638

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