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How do you solve this? 1. Daeske is negotiating to lease ten new railroad cars with AIG Leasing. The firm has received an offer from

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1. Daeske is negotiating to lease ten new railroad cars with AIG Leasing. The firm has received an offer from Trinity Industries for a total purchase price of $1,000,000. The terms of the lease include four payments of $270,000, with each payment occurring at the beginning of the year. An alternative to leasing is to borrow the money and buy the railroad cars. The $1,000,000 term loan for four years has an annual interest rate of 10%. Assume the railroad cars fall into the MACRS 3-year class and has an expected residual value of $100,000. The applicable depreciation rates are .3333,.4445, .1481 and .0741. Maintenance costs would be included in the lease. If the railroad cars are purchased, a maintenance contract would be bought at the beginning of each year for $15,000 annually. Daeske plans to buy a new fleet of railroad cars at the end of the fourth year. The firm has an effective tax rate of 21%. a). What is Daeske's present value of the cost of owning? b.) What is Daeske's present value of the cost of leasing? c.) What is Daeske's Net Advantage to Leasing (NAL)

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