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Compare the two financing options below by calculating their respective Net present values ( NPVs ) : Example Evaluation lease financing on relation to debt

Compare the two financing options below by calculating their respective Net present values (NPVs):
Example
Evaluation lease financing on relation to debt financing
We assume that the firm has decided to invest 10mil. in a project and has decided to finance the project
with either debt or lease financing
Characteristic of the lease financing:
Leasing period: 4 years
Lease payments: advanced payment 5 mil. at time 0, annual payments 2 mil. at the end of each year.
Lease factor 1,3
Characteristic of the borrowing:
If the asset is purchased, company would finance it with a loan of 10 mil, payable over 5 years with annual
payments of 2638 at the end of each year. Interest rate of the loan 10%. The company is in a 40% tax bracket.
Assets lifetime is 5 year. Discount rate 6%.
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