Explore BrainMass
Share

Net advantage of Lease

This content was STOLEN from BrainMass.com - View the original, and get the solution, here!

I need help with this question concerning Kemp Corporation. I appreciate your help.

Problem 1: Kemp Corporation is evaluating whether to lease or purchase equipment.
The equipment will cost $500,000 if purchased, and the entire amount will be financed
by a bank loan at an annual interest rate of 10 %. At the end of 4 years, the company
expects to sell the equipment for $60,000. The equipment falls in the MACRS 3-year class.
The firm's tax rate is 30 %. 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. Should the firm purchase or lease the equipment. Why?

© BrainMass Inc. brainmass.com September 24, 2018, 9:26 am ad1c9bdddf - https://brainmass.com/business/leasing/net-advantage-of-lease-276473

Attachments

Solution Summary

The solution explains how to determine the NAL

$2.19