Hi there!

I'm stuck on how to calculate NAL, could you please provide some assistance? Here is the problem;

Your company wants to purchase a new network file server for its wide-area computer network. The server costs $24,000. It will be obsolete in three years. Your options are to borrow the money at 10% or lease the machine. If you lease it, the payments will be $9,000 per year, payable at the beginning of each year. If you buy the server, you can apply a CCA rate of 30% per year. The tax rate is 40%. Suppose the server had a projected salvage value of $1,000.

So I have my formula here:

NAL = NPV Leasing - NPV Buying or

NAL = Investment - PV after-tax lease payments - PVCCATS - PVSalvage

I've determined the PVCCATS

PV tax shield on CCA = IdTc/d+r x 1 + 0.5(r)/1+r - Sn(d)(Tc)/d+r x 1/(1+r)^N

I = 24,000

d = 30%

Tc = 40%

r = 10%

Sn = 1000

n = 3

[(24,000)(0.3)(0.4)/0.3 + 0.1] x [1 + 0.5(0.1)/1+0.1] - [1000(0.3)(0.4)/0.3+0.1] x[ 1/(1+0.1)^3]

= [2,880/0.4] x [1.05/1.10] - [120/0.4] x [0.97059015]

= 7200 x 0.95454545 - 300 x0.0.75131480

= 6872.727240 - 225.39444

= 6647.332800

What I need help on is how I determine PV after-tax lease payments and the PV of the Salvage.

Any help you could provide would be greatly appreciated!

Thank you,

Mike