[1.] Bird Wing Bedding can lease an asset for 4 years with payments of $17,000 due at the beginning of the year. The firm can borrow at a 10% rate and pays a 25% federal-plus-state tax rate. The lease qualifies as a tax-oriented lease. What is the cost of leasing? Do not round intermediate calculations. Round your answer to the nearest dollar.

$______________

[2.] Comey Products has decided to acquire some new equipment having a $240,000 purchase price. The equipment will last 4 years and is in the MACRS 3-year class. (The depreciation rates for Year 1 through Year 4 are equal to 0.3333, 0.4445, 0.1481, and 0.0741.) The firm can borrow at a 9% rate and pays a 25% federal-plus-state tax rate. Comey is considering leasing the property but wishes to know the cost of borrowing that it should use when comparing purchasing to leasing and has hired you to answer this question. What is the correct answer to Comey's question? (Hint: Use the shortcut method to find the after-tax cost of the loan payments.) Do not round intermediate calculations. Round your answer to the nearest dollar.

$ _______________

[3.] Dunbar Corporation can purchase an asset for $23,000; the asset will be worthless after 12 years. Alternatively, it could lease the asset for 12 years with an annual lease payment of $2,812 paid at the end of each year. The firm's cost of debt is 9%. The IRS classifies the lease as a non-tax-oriented lease. What is the net advantage to leasing? Enter your answer as a positive value. Do not round intermediate calculations. Round your answer to the nearest cent.

$________________

[4.] Reynolds Construction (RC) needs a piece of equipment that costs $135,000. The equipment has an economic life of 3 years and no residual value. The equipment will not require maintenance because its useful life is so short. RC can borrow the full cost of the equipment at an interest rate of 7% with payments due at the end of the year. Alternatively, RC can lease the equipment for $50,000 with payments due at the end of the year. Assume RC chooses the lease, which is a finance lease for financial reporting purposes. Answer the following questions.

a.) What is the initial lease liability that must be reported on the balance sheet? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value.

$__________

b.) What is the initial right-of-use asset? Do not round intermediate calculations. Round your answer to the nearest cent.

$___________

c.) What will RC report as an interest expense at Year 1? Round your answer to the nearest cent. Enter your answer as a positive value.

$___________

d.) What will RC report as an amortization expense at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value.

$___________

e.) What will RC report as the lease liability at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value.

$___________

f.) What will RC report as the right-of-use asset at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent.

$_____________

[5.] Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It can obtain a bank loan for 100% of the purchase price, or it can lease the machinery. Assume that the following facts apply:

1. The machinery falls into the MACRS 3-year class. (The depreciation rates for Year 1 through Year 4 are equal to 0.3333, 0.4445, 0.1481, and 0.0741.)
2. Under either the lease or the purchase, Big Sky must pay for insurance, property taxes, and maintenance.
3. The firm's tax rate is 25%.
4. The loan would have an interest rate of 11%. It would be nonamortizing, with only interest paid at the end of each year for four years and the principal repaid at Year 4.
5. The lease terms call for $380,000 payments at the end of each of the next 4 years.
6. Big Sky Mining has no use for the machine beyond the expiration of the lease, and the machine has an estimated residual value of $200,000 at the end of the 4th year.

a.) What is the cost of owning? Enter your answer as a positive value. Do not round intermediate calculations. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest dollar.

$___________

b.) What is the cost of leasing? Enter your answer as a positive value. Do not round intermediate calculations. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest dollar.

$ ____________

c.) What is the NAL of the lease? Do not round intermediate calculations. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest dollar.

$ _____________