Reference no: EM132566655
Sky Corporation must install $1.5 million of new machinery in its Jamaica mine. It can obtain a bank loan for 100 percent of the purchase price, or it can lease the machinery. Assume that the following facts apply:
1. The machinery falls into the MACRS 3-year class. (33%, 45%,15%,7% years 1- 4 )
2. Estimated maintenance expenses are $75, 000 per year, payable at the beginning of each year
3. The tax rate is 40%
4. The loan would have an interest of 16 percent
5. The lease terms call for $400,000 payments at the end of each of the next 4 years.
6. Under either the lease or the purchase, Sky must pay for insurance, property taxes, and maintenance
7. Assume that Sky Mining will continue to use the machine beyond the expiration of the lease and must purchase it at an estimated residual value of $300, 000 at the end of the 4th year.
Question 1: What is the NAL of the lease?
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