Big Sky Mining Company must install $1.5 million of new machinery in its Nevada
ID: 2764958 • Letter: B
Question
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 2-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 expiation 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? Answer by competing the following worksheet template.
NPV LEASE ANALYSIS Year After-tax cash flows from leasing Lease payment Tax savings from lease Net cash flow PV cost of leasing at 9%Explanation / Answer
ANS;
NAL of the lease = $90,067
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.