#6. Corbin & Co. is evaluating the merits of leasing versus purchasing an automobile with a 4- year life that costs $44,000 and falls into the MACRS 3-year class. The funds needed could be borrowed from the bank through a 4-year amortized loan at an 8% interest rate, with payments to be made at the end of each year, thus the interest expense for taxes would decline over time. The automobile will be used for 4 years, at the end of which time it will be sold at an estimated residual value of $12,000. If Corbin buys the automobile, it would purchase a maintenance contract that costs $1,200 per year, payable at the end of each year. The lease terms, which include maintenance, call for a $11,000 lease payment (4 payments total) at the beginning of each year. Corbin's tax rate is 35%. What is the net advantage to leasing? Please refer the table below for MACRS rates. (15 points) MACRS Depreciation Percentages Class of Investment 3-Year 5-Year 7-Year 10-Year Ownership Year 15-Year 20-year 33.33% 44.45% 14.81% 7.41% 3 4 5 6 7 8 20.00% 32.00% 19.20% 11.52% 11.52% 5.76 14.29% 24.49% 17.49% 12.49% 8.93% 8.92% 8.93% 4.46% 9 10 11 12 13 14 15 16 17 18 19 20 10.00% 5.00% 3.750% 18.00% 9.50% 7.219% 14.40% 8.55% 6.677% 11.52% 7.70% 6.177% 9.22% 6.93% 5.713% 7.37% 6.23% 5.285% 6.55% 5.90% 4.888% 6.55% 5.90% 4.522% 6.56% 5.91% 4.462% 6.55% 5.90% 4.461% 3.28% 5.91% 4.462% 5.90% 4.461% 5.91% 4.462% 5.90% 4.461% 5.91% 4.462% 2.95% 4.461% 4.462% 4.461% 4.462% 4.461% 2.231% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% * For an amortizing loan, you can use the loan schedule table as below. Beg. Bal. PMT Interest Principal Year Ending Bal. 2 3 4