Question
Nodhead College needs a new computer. It can either buy it for $250,000 or lease it from Compulease. The lease terms require Nodhead to make
Nodhead College needs a new computer. It can either buy it for $250,000 or lease it from
Compulease. The lease terms require Nodhead to make six annual payments (prepaid)
of $62,000. Nodhead pays no tax. Compulease pays tax at 35 percent. Compulease can
depreciate the computer for tax purposes over five years. The computer will have no
residual value at the end of year 5. The interest rate is 8 percent.
a. What is the NPV of the lease for Nodhead College?
b. What is the NPV for Compulease?
c. What is the overall gain from leasing?
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Financial Management for Public, Health and Not-for-Profit Organizations
Authors: Steven A. Finkler, Daniel L. Smith, Thad D. Calabrese, Robert M. Purtell
5th edition
1506326846, 9781506326863, 1506326862, 978-1506326849
