Reference no: EM13994526
Question: (This problem refers to Lease Financing)
Waldrop Corporation wants to finance manufacturing tools. It will need the tools for the next 3 years.
The company is considering a leasing arrangement. The tools will be obsolete and worthless after 3 years.
The company will depreciate the cost of the tools on a straight-line basis over their 3-year life.
It can borrow $4,800,000, the purchase price, at 10% and buy the tools, or it can make 3 equal end-of-year lease payments of $1,700,000 each and lease them.
The loan obtained from the bank is a 3-year simple interest (non-amortized) loan, with interest paid at the end of the year and the principal paid in Year 3. The company's tax rate is 40%.
What is the Net Advantage to Leasing (NAL), in thousands?
Show the breakdown comparison for both purchasing and for leasing.
*** Please submit answer in spreadsheet format
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