What is the incremental cash flow in year five

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A tree cutting business needs a new stump grinder. The machine can be purchased outright for $10,000, or it can be acquired via a 5-year financing lease. The lease payments are $1,000 per year, paid in advance, with a final residual payment of $2,000 at the end of the 5th year, and the business will own the grinder. The machine can be depreciated straight-line over 5 years and the business pays tax at 30%. Answer the following questions, given that the company's cost of borrowing is 5% p.a.

Question 1: What is the incremental cash flow in year 0?

Question 2: What is the incremental cash flow in year 1-4?

Question 3: What is the incremental cash flow in year 5?

Question 4: What is the Npv incremental cash flow ?

Reference no: EM132583817

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