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NPV and Overall Gain: Nodhead College and Compulease

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Nodhead College needs a new computer. It can either buy it for $250,000 or lease it from Compulease. The lease terms require Nodhead to make six annual payments (prepaid) of $62,000. Nodhead pays no tax. Compulease pays tax at 35%. Compulease can depreciate the computer for tax purposes over five years. The computer will have no residual value at the end of year 5. The interest rate is 8%. Show your work.

What is the NPV of the lease for Nodhead College?
What is the NPV for Compulease?
What is the overall gain from leasing?

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Solution Summary

NPV and overall gain are examined for Nodhead College and Compulease.

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