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. Please answer all questions.

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

132,482

157,459

145,723

125,472

Determine the present value of the pumps salvage value.

48,649

32,436

61,819

75,454

Determine the present value of depreciation tax shield.

259,457

455,470

526,262

588,807

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

887,492

1,035,157

927,371

1,237,256

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

554,485

-554,485

422,478

-422,478

Should Hydrolift lease the pump?

Yes

No