An asset is to be purchased for $25,000. The asset is expected to provide revenue of $10,000 a year and have operating costs of $2,500 a year. The asset is considered to be a seven-year MACRS property. The company is planning to sell the asset at the end of year 5 for $5,000. Given that the company! marginal tax rate is 30% and that it has a MARR of 10% for any project undertaken, answer the following questions.
(a) What is the net cash flow for each year, given that the asset is purchased with borrowed funds at an interest rate of 12% with repayment in five equal end-of-year payments?
(b) What is the net cash flow for each year, given that the asset is leased at a rate of $3,500 a year (a financial lease)?
(c) Which method (if either) should be used to obtain the new asset?