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Could you explain how the various figures were arrived at to the solutions to the attached question The Blank Button Company is considering the purchase
Could you explain how the various figures were arrived at to the solutions to the attached question
The Blank Button Company is considering the purchase of a new machine for $30,000. The machine is expected to save the firm $12,500 per year in operating costs over a 5 year period, and can be depreciated on a straight-line basis to a zero salvage value over its life. Alternatively, the firm can lease the machine for $6,500 per year for 5 years, with the first payment due in 1 year. The firm's tax rate is 34%, and its cost of debt is 10%. Calculate the NPV of the lease versus the purchase decision. Calculate the reservation payment of the lessee. NPV of Lease versus Buy: $-30,000 - ($10,290 - $3,960) A5, .066 = $3,765.39 Prefer to Lease as the NPV of Lease Versus Buy is positive. Reservation Payment LMAX = $30,000/A5,.1 = $30,000/3.79 = $7,913.89Step by Step Solution
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