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HELP WITH PART A Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It can obtain a bank loan
HELP WITH PART A
Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It can obtain a bank loan for 100% of the purchase price, or it can lease the machinery. Assume that the following facts apply: 1. The machinery falls into the MACRS 3 -year class. (The depreciation rates for Year 1 through Year 4 are equal to 0.3333,0.4445,0.1481, and 0.0741.) 2. Under either the lease or the purchase, Big Sky must pay for insurance, property taxes, and maintenance. 3. The firm's tax rate is 25%. 4. The loan would have an interest rate of 10%. It would be nonamortizing, with only interest paid at the end of each year for four years and the principal repaid at 4 . 5. The lease terms call for $400,000 payments at the end of each of the next 4 years. a. What is the cost of owning? Enter your answer as a positive value. Do not round intermediate calculations. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest dollar. $Step by Step Solution
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