Consider the case of Scorecard Corporation: Scorecard Corporation is considering the purchase of new manufacturing equipment that will cost $15,000 (including shipping & installation). Scorecard can take out a 4-year, $15,000 loan to pay for the equipment at an interest rate of 3.60%. The loan and purchase agreements will aslo contain the following provisions:

The annual maintenance expense for the equipment is expected to be $150.

The equipment has a 4-year depreciable life. The Modified Accelerated Cost Recovery System's (MACRS) depreciation rates for a 3-year asset are 33.33%, 44.45%, 14.81%, and 7.41% respectively.

The corporate tax rate for Scorecard iss 40%.

NOTE: Scorecard corporation is allowed to take a full-year depreciation tax-saving deduction in the first year.

1. Based on the preceding information, complete the following:

a) Annual loan payment will be: $11,370.74 / $4,093.47 / $40.94 / $56,853.70

b) Annual tax savings from maintenance will be: $27 / $126 / $66 / 60

c) Fill up the following table:

	Year 1	Year 2	Year 3	Year 4
Tax savings from depreciation	$7,381 / $2,700 / $9,002 / $2,000	$6,001 /$2,000 / $9,002 / $2,667	$7,381 / $889 / $2,700 / $445	$445 / $9,002 /$2,700 / $7,381
Net cash flow	-$31,476 / $3,777 / $21,404 / -$1,967	$21,404 / $3,777/ -$1,351 / -$31,476	-$31,476 / $3,777 / $21,404 / $3,182	-$31,476 / $3,777 / $21,404 / -$3,681

2. Thus, the NPV cost of owning the asset will be: -$9,082 / $11,594 / -$9,582 / -$21,203

3. Scorecard corporation has been offered an operating lease on the same equipment. The 4-year lease requires end-of-year payments of $600, and the firm will have the option to buy the asset in 4 years for $3,300. The firm will want to use the equipment longer than 4 years, so it plans to exercise this option. All maintenance will be provided by the lessor. What is the NPV cost of leasing the asset? -$4,395 / -$5,494 / -$13,965 / -$1,035

4. Should Scorecard lease or buy the equipment?