Purchase Solution

NAL of a lease

Not what you're looking for?

Ask Custom 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:

1. The machinery falls into the MACRS 3-year class.
2. Under either the lease of the purchase, Big Sky must pay for insurance, property taxes, and maintenance.
3. The firm's tax rate is 40%.
4. The loan would have an interest rate of 15%
5. The lease terms call for $400,000 payments at the end of each of the next 4 years.
6. Assume that Big Sky Mining has no use for the machine beyond the expiration 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?

Purchase this Solution
Solution Summary

The solution explains how to calculate the NAL of a lease

Purchase this Solution
Free BrainMass Quizzes
Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

Operations Management

This quiz tests a student's knowledge about Operations Management

Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

View More Free Quizzes
Related BrainMass Solutions

  • Lease or Buy After Tax Decisions

    309784 Lease or Buy After Tax Decisions Our company is considering leasing a diagnostic scanner. The scanner costs $2.5 million and qualifies for a 30 percent CCA rate. Because of radiation contamination, it is valueless in four years.

  • Net Advantage to Lease (NAL)

    315876 Net Advantage to Lease (NAL) Buster's Beverages is negotiating a lease on a new piece of equipment that would cost $100,000 if purchased.

  • WACC, Projected Dividends, Borrowing Cost, NAL, Equipment Lease

    ABC's cost of debt is 9% and its WACC is 12%. c. Calculate the NAL assuming a ZERO residual value. Should ABC lease? d. Calculate the NAL assuming a $250,000 residual value. Should ABC lease? 6.

  • NAL and IRR of the lease

    -Tentative lease terms call for payments of $320,000 at the end of each year. - The best estimate for the value of the computer after three years of wear and tear is $200,000. a. What are the NAL and IRR of the lease?

  • NAL and IRR of the lease

    - If leased, the lease (rental) payments would be $400,000 payable at the end of each of the next four years. - The estimated residual (and salvage) value is $250,000. a. What are the NAL and IRR of the lease?

  • Kohers Inc. Lease Arrangement

    NAL = $3,474.2 - $3,368.0 = $106.2. Since the answer is stated in thousands, NAL = $106.2  1,000 = $106,200. Lease arrangements for Kohers Inc is examined.

  • NPV Lease Analysis

    If you remove the interest payment, you will see we have the same figures in buy in year 1 and 2 The solution explains how to do a lease analysis and calculate the NAL of the lease.

  • Net advantage of Lease

    The lease terms call for payments of $100,000 for 4 years, payable at the beginning of the year. MACRS % by year a. Calculate the cost of purchasing the equipment. b. Calculate the cost of leasing the equipment. c. Calculate the NAL.

  • Net Advantage to Leasing Allied Metals

    The net cash flows to lessee over the term of the lease (with zero residual value) are given here. Allied's cost of secured debt is 12%, and its cost of capital is 16%. Allied pays taxes at a 34% marginal rate. a.

View More Related Solutions