Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Elon Inc. is a solar battery manufacturer. It would like to lease a specialized equipment to make the production of its batteries more efficient. Elon
Elon Inc. is a solar battery manufacturer. It would like to lease a specialized equipment to make the production of its batteries more efficient. Elon Inc. can lease the equipment from another company, Galaxy Inc., that owns it. Another option is to purchase the equipment. The equipment costs $8,000,000. Because the equipment would be used so much, it will be valueless in four years. Another option that Elon Inc. has is to lease the equipment for $2,325,000 per year for four years from another company, Galaxy Inc., that owns it. Elon Inc. is in the 22 percent income tax rate bracket. It can borrow at 7 percent pre-tax rate. Additional information: assume that if purchased the solar batteries production equipment would be depreciated according to the three-year property class under the MACRS depreciation method. Calculate Elon Inc.'s net advantage to leasing, i.e., NAL. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. If your answer is negative, don't forget to put the minus sign.) NAL
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started