NPV Lease Analysis
A company must install $1.5 million of new equipment. It can get a loan for 100% of purchase price or lease the equipment.
-The equipment falls into the MACRS 3-yr class.
-Maintence expenses are $75,000 per year, payable at the beginning of each year.
-Tax rate is 40%
-Lease payments are $400,000 payable at the end of each year for 4 years.
-The company will keep the equipment past the expiration of the lease and will purchase it at its residual value of of $250,000 at the end of the 4th year.
I’ve been working on the problem for 3 days and cannot get to a (net advantage to leasing) NAL of $37,206. File attached showing my work.