Hydrolift wants to acquire a $2,000,000 hydraulic pump for their new facility. Hydrolift has a 40 percent marginal tax rate. If owned, pump would be depreciated on a straight-line basis to a book salvage value of $0. The actual cash salvage value is expected to be $320,000 at the end of 10 years. To purchase, Hydrolift can borrow the needed funds at a pre-tax rate of 10%. If purchased, Hydrolift will incur annual maintenance expenses of $18,000. These expenses would not be incurred if the pump is leased. The lease rate would be $210,000 per year, payable at the end of each year. Hydrolifts weighted after-tax cost of capital is 12 percent.

A. Determine the present value of after-tax operating cost of owning the pump.

B. Determine the present value of the pumps salvage value.

C. Determine the present value of depreciation tax shield.

D. Determine the present value of the after-tax annual lease payments.

E. Determine the net advantage of leasing the pump (NAL).

F. Should Hydrolift lease the pump?