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Carmichael Cleaners needs a new steam finishing machine that costs $ 1 0 0 , 0 0 0 . The company is evaluating whether it

Carmichael Cleaners needs a new steam finishing machine that costs $100,000. The company
is evaluating whether it should lease or purchase the machine. The equipment falls into the
MACRS 3-year class, and it would be used for 4 years and then sold, because the firm plans
to move to a new facility at that time. The estimated value of the equipment after 4 years is
$30,000. A maintenance contract on the equipment would cost $5,000 per year, payable at
the beginning of each year. Alternatively, the firm could lease the equipment for 4 years for a
lease payment of $29,000 per year, payable at the beginning of each year. The lease would
include maintenance. The firm could obtain a 4-year simple interest loan, interest payable at
the end of the year, to purchase the equipment at a before-tax cost of 10%. The firm is in the
30% tax bracket. If there is a positive Net Advantage to Leasing the firm will lease the
equipment. Otherwise, it will buy it. What is the NAL? (Note: Assume MACRS rates for
Years 1 to 4 are 0.3333,0.4445,0.1481, and 0.0741.)

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