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40. Baxter Contractors is evaluating the lease versus the purchase of a $329,000 machine. The machine will be depreciated using MACRS over a 4-year period,

40.

Baxter Contractors is evaluating the lease versus the purchase of a $329,000 machine. The machine will be depreciated using MACRS over a 4-year period, after which the machine will be worthless. MACRS allows for 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percent depreciation over years 1 to 4, respectively. The machine could be leased for $105,000 a year for 4 years. The firm can borrow money at 9.5 percent and has a 35 percent tax rate. The firm does not expect to pay any taxes for the next 5 years. What is the net advantage to leasing?

A.

-$4,587

B.

-$7,471

C.

-$18,640

D.

-$21,651

E.

-$30,277

I understand I should be using the TVM functions on my calculator to solve for a PVA, but I am confused about what I am trying to find using my calculator. Am I solving for PMT or PV and then subtracting that from the amount it would cost to buy the project?

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