What is the NAL of the lease

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Reference no: EM131049245

Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It can obtain a bank loan for 100% of the purchase price or it can lease the machinery. Assume that the following facts apply:

The machinery falls into the MACRS 3-year class

Under either the lease or the purchase, Big Sky must pay for insurance, property taxes, and maintenance

The firm’s tax rate is 40%

The loan would have an interest rate of 15%

The lease terms call for $400,000 payments at the end of each of the next 4 years.

Assume that Big Sky Mining has no use for the machine beyond the expiration of the lease. The machine has an estimated residual value of $250,000 at the end of the 4th year.

What is the NAL of the lease?

Reference no: EM131049245

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