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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.

Thank You!!!


Solution Preview

I have done the calculations in sheet 2 to get the NAL of $37,206. The errors in your calculation were

1. Time period should be 4 years since the question says lease payments would be for 4 years and also the depreciation is for 4 years.
2. When you use the ...

Solution Summary

The solution explains how to do a lease analysis and calculate the NAL of the lease.