1)Morrison Industrial Tool can either lease or buy some equipment. The lease payments will be $7,000 a year. The purchase price is $21,000. The equipment has a 3-year life after which time it is expected to have a resale value of $3,000. The firm uses straight-line depreciation, borrows money at 7 percent and has a 35 percent tax rate. What is the incremental cash flow for year 1 if the company decides to lease the equipment rather than purchase it?

$1,344

$-13,712

$-7,000

$-23,970

$8,432

2)Daily Enterprises is contemplating the acquisition of some new equipment. The purchase price is $39,000. The equipment has a 4-year life. The company expects to sell the equipment at the end of year 4 for $8,000. The firm uses MACRS depreciation which allows for 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percent depreciation over years 1 to 4, respectively. The equipment can be leased for $11,000 a year. The firm can borrow money at 8 percent and has a 35 percent tax rate. What is the incremental annual cash flow for year 4 if the company decides to lease the equipment rather than purchase it?

$-16,237

$-12,905

$-8,679

$-13,361

$-7,885

3)Fargo North is considering the purchase of some new equipment costing $79,000. This equipment has a 2-year life after which time it will be worthless. The firm uses straight-line depreciation and borrows funds at a 9 percent rate of interest. The company's tax rate is 34 percent. The firm also has the option of leasing the equipment. What is the amount of the break-even lease payment?

$48,302

$38,102

$42,123

$44,884

$31,306

4)Precision Tool is trying to decide whether to lease or buy some new equipment for its tool and die operations. The equipment costs $57,000, has a 3-year life and will be worthless after the 3 years. The pre-tax cost of borrowed funds is 10 percent and the tax rate is 34 percent. The equipment can be leased for $21,500 a year. What is the net advantage to leasing?(Do not round intermediate calculations.)

$1,143

$22

$2,763

$-2,245

$2,409

5)The Wildcat Oil Company is trying to decide whether to lease or buy a new computer-assisted drilling system for its oil exploration business. Management has decided that it must use the system to stay competitive; it will provide $1.8 million in annual pretax cost savings. The system costs $8.5 million and will be depreciated straight-line to zero over its five-year life, after which it will be worthless. Wildcat's tax rate is 34 percent, and the firm can borrow at 10 percent. Lambert Leasing Company has offered to lease the drilling equipment to Wildcat for payments of $2,010,000 per year. Lambert's policy is to require its lessees to make payments at the start of the year.

What is the NAL for Wildcat?(Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations andround your answer to 2 decimal places, e.g., 32.16.)

NAL$

What is the maximum lease payment that would be acceptable to Wildcat?(Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations andround your answer to 2 decimal places, e.g., 32.16.)

Lease payment$

6)National Event Coordinators is contemplating the acquisition of a new tent that will be used for major outdoor events. The purchase price is $144,000. The firm uses MACRS depreciation which allows for 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percent depreciation over years 1 to 4, respectively. The tents have a 4-year life after which time they are worthless. The tent can be leased for $30,000 a year. The firm can borrow money at 9 percent and has a 35 percent tax rate. What is the net advantage to leasing?

$23,169

$31,950

$25,416

$27,367

$31,064

7)Green Valley Farms is considering either leasing or buying some new farm equipment. The lessor will charge $17,000 a year lease. The purchase price is $57,000. The equipment has a 3-year life after which time it will be worthless. Green Valley Farms uses straight-line depreciation, has a 32 percent tax rate, borrows money at 10 percent, and has sufficient tax loss carryovers to offset any potential taxable income the firm might have over the next five years. What is the net advantage to leasing?

$16,182

$14,724

$17,193

$13,456

$14,081

8)You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a common practice with expensive, high-tech equipment). The scanner costs $5,400,000, and it would be depreciated straight-line to zero over three years. Because of radiation contamination, it will actually be completely valueless in three years. Assume that the tax rate is 35 percent. You can borrow at 14 percent before taxes.

What would the lease payment have to be for both the lessor and the lessee to be indifferent about the lease?(Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Break-even lease payment$

9)You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a common practice with expensive, high-tech equipment). The scanner costs $7,650,000, and it would be depreciated straight-line to zero over five years. Because of radiation contamination, it will actually be completely valueless in five years. You can lease it for $2,200,000 per year for five years. Assume that the tax rate is 35 percent. You can borrow at 14 percent before taxes.

Calculate the NAL.(Do not round intermediate calculations andround your answer to 2 decimal places, e.g., 32.16.)

NAL$

Should you lease or buy?LeaseBuy

10)Bob's Pizza is considering either leasing or buying a new oven. The lease payments would be $19,000 a years. The purchase price is $47,000. The equipment has a 3-year life and then is expected to have a resale value of $8,000. Bob's Pizza uses straight-line depreciation, borrows money at 9 percent and has a 34 percent tax rate. What is the net advantage to leasing?

$-5,252

$1,639

$-1,785

$-1,266

$-4,598