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A firm wants the use of a machine that costs $125,000. If the firm purchases the equipment, it will depreciate the equipment at the
A firm wants the use of a machine that costs $125,000. If the firm purchases the equipment, it will depreciate the equipment at the rate of $25,000 a year for four years, at which time the equipment will have a residual value of $25,000. Maintenance will be $2,500 a year. The firm could lease the equipment for four years for an annual lease payment of $30,574. Currently, the firm is in the 40 percent income tax bracket. a. Determine the firm's cash inflows and outflows from purchasing the equipment and from leasing. Use a minus sign to enter negative values, if any. If the answer is zero, enter "0". Round your answers to the nearest cent. Year Net cash flows under leasing 2 3 Net cash flows under purchasing b. If the firm uses a 14 percent cost of funds to analyze decisions that involve payments over more than a year, should management lease the equipment or purchase it? Use Appendix B and Appendix D to answer the question. Use a minus sign to enter negative values, if any. Round your answers to the nearest cent. Present value of net cash flows under leasing: $ Present value of net cash flows under purchasing: $ Management should -Select- the equipment as the present value of the net cash flows under this option is -Select- c. If the firm uses a 8 percent cost of funds to analyze decisions that involve payments over more than a year, should management lease the equipment or purchase it? Use Appendix B and Appendix D to answer the question. Use a minus sign to enter negative values, if any. Round your answers to the nearest cent. Present value of net cash flows under leasing: $ Present value of net cash flows under purchasing: $ Management should -Select- the equipment as the present value of the net cash flows under this option is -Select-
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