Lease versus Buy

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.
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 35%.
4. The loan would have an interest rate of 15%. It would be nonamortizing, with only interest paid at the end of each year for four years and the principal repaid at Year 4.
5. The lease terms call for $400,000 payments at the end of each of the next 4 years.
6. Big Sky Mining has no use for the machine beyond the expiration of the lease, and the machine has an estimated residual value of $250,000 at the end of the 4th year.

	MACRS
Year	Allowance Factor
1	0.3333
2	0.4445
3	0.1481
4	0.0741

What is the NAL of the lease? Do not round intermediate calculations. Round your answer to the nearest dollar.

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Accounts Payable

A chain of appliance stores, APP Corporation, purchases inventory with a net price of $300,000 each day. The company purchases the inventory under the credit terms of 1/15, net 30. APP always takes the discount but takes the full 15 days to pay its bills. What is the average accounts payable for APP? Round your answer to the nearest dollar.

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