Question
Avista Company is considering leasing a new machine. The lease lasts for 5 years. The lease calls for 5 payments of $71,000 per year with
Avista Company is considering leasing a new machine. The lease lasts for 5 years. The lease calls for 5 payments of $71,000 per year with the first payment occurring immediately. The machine would cost $305,000 to buy and would be straight-line depreciated to a zero salvage value over 5 years. The firm can borrow at a rate of 6%. The corporate tax rate is 16%. What is the NPV of the lease relative to the purchase if the asset had a pretax salvage value of $16,000 at the end of its economic life (ignoring any possible risk differences)?
-$17,379.38 | ||
-$18,011.54 | ||
-$18,643.70 | ||
-$19,275.86 | ||
-$19,908.02 |
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