=+Net income after taxes was $6,500 for 2001. McAdoo's marginal tax rate is 35 percent. On December 31, 2000, McAdoo entered into sev-

eral major lease contracts. These leases were all for 10 years and were operating leases. Starting in 2001, total annual lease payments, due on each December 31, are $3,000. McAdoo's marginal cost of capital rate is 10 percent. No change in liabilities occurred during the year and there were no transactions with owners.

Required:

Convert the operating lease to a capital lease which is 1 year old

(Hint: Use the present value of a 10-year ordinary annuity). Assume that straight-line depreciation is used for both book and tax pur-

poses. There would be a zero salvage value.