Smith Corp could purchase the electronic welder for $500,000. The firm would fin

Question

Smith Corp could purchase the electronic welder for $500,000. The firm would finance the purchase of the machine with a 16%, 4-year loan requiring end -of-year installment payments of $178,690. It would be depreciated under MACRS using a 5-year recovery period. The firm would pay $5,000 per year for a service contract that covers all maintenance costs. There is no salvage value.

Compute the after-tax cost of purchasing <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Explanation / Answer

Cost of purchasing is 4 * 178690 + 5000 * 5 = 739760

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