Merritt Corp. is in need of a packing machine. The machine costs $120,000 and has estimated life of 4 years. If purchased, it would depreciate to zero by straight-line method. Alternatively, Merritt can lease the machine from Milford, Inc. for a yearly lease of $34,000 payable at the beginning of each year. Merritts cost of debt is 8%, Milfords cost of debt is 10%. Both have tax rate of 30%. Net advantage to leasing (NAL) is approximately ($):

1. Merritt Corp. is in need of a packing machine. The machine costs $120,000 and has estimated life of 4 years. If purchased, it would depreciate to zero by straight-line method. Alternatively, Merritt can lease the machine from Milford, Inc. for a yearly lease of $34,000 payable at the beginning of each year. Merritts cost of debt is 8%, Milfords cost of debt is 10%. Both have tax rate of 30%. Net advantage to leasing (NAL) is approximately ($):

-1,621

3,256

635

5,056