Assume that Kaibab Logging Companys tax rate is 30%. A logging machine it needs costs $200 to buy. This logging equipment lasts for two years and is depreciated at $100 per year. For simplicity, assume away other factors such as maintenance costs, salvage value, etc. Kaibab Logging faces the following options:

If the Kaibab Logging leases this asset for 2 years, the payment is $108 at the beginning of each year.

If the Kaibab Logging borrows a loan and buys the asset, the bank charges 10% interest on the loan. Kaibab Logging Company can also use its internal funds to buy the equipment

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Note: For the following three questions, insert just one letter as your answer, such as "A" or "B" or "C", etc. Do not insert a number.

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A. Whats Kaibab Logging Companys cost of leasing? Your answer is

(Note: negative means cash outflow, i.e., cost)

(A) $195.27 (B) $216 (C) $136.69 (D) $187.43 (E) None of the others is correct

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B. Whats Kaibab Logging Companys cost of owning? Your answer is

(Hint: whether using internal funds or a borrowed loan makes no difference)

(A) $173.55 (B) $180.80 (C) $187.43 (D) $145.76 (E) None of the others is correct

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C. Whats Kaibab Logging Companys NAL? Your answer is

(Hint: HAL means Net Advantage to Leasing. If NAL is positive, it means leasing is better, i.e., leasing costs less)

(A) $8 (B) $8 (C) $9.07 (D) $9.07 (E) None of the others is correct

6.Operating leases often have terms that include A

		maintenance of the equipment by the lessor
		lessee is responsible for property taxes
		very high penalties if the lease is cancelled
		much longer lease periods than for most financial leases