$($CHAPTER $21)$

the lab. Which one is better? Here's what's known about the machine and about the Quantum $\text{'}$R Us company:

Quantum $\text{'}$R Us's pre$-$tax borrowing rate is $7\%$ per year.

Quantum $\text{'}$R Us pays a $40\%$ tax rate on its corporate taxable income.

If the machine for the research lab is leased, Quantum $\text{'}$R Us would need to pay $$1,200,000$ at the end of every year in pre$-$tax lease payments, for $6$ years.

Calculate the following:

Each year, the depreciation of the machine would equal

$,$ and the tax savings from depreciation $($or the "tax shield"$)$ would equal

$.$ That's if the machine is purchased.

Each year, Quantum $\text{'}$R Us would need to make a $

lease payment after taxes. That's if the machine is leased.

Based on Quantum $\text{'}$R Us's calculations of "leasing instead of buying" incremental cash flows for each year, in "Year $0"$ it would equal

equal

$.$As part of this valuation analysis, the appropriate discount rate for these cash flows would equal $[$Select $]$

Based on the above, the calculations show that Quantum $\text{'}$R Us's estimated net advantage to leasing, or NAL $($i$.$e$.,$ the NPV of leasing instead of buying$),$ is

In addition $($no math!$)$:

Ingeneral, if Quantum $\text{'}$R Us's calculated NAL is positive, then it should

J the machine. And in this case, in order for Quantum $\text{'}$R Us to be indifferent between leasing and purchasing the machine, the lease payment

would have to

In general, if Quantum $\text{'}$R Us's calculated NAL is positive, then the other company that would be leasing the machine to Quantum $\text{'}$R Us woulc

to sign the lease agreement with Quantum $\text{'}$R Us$.$