Part 7 Big Als currently leases its equipment from Pizza Products for $2,500 per month. Two years of the five-year lease term remain. Big Als can terminate the lease at any time by paying a penalty of $10,000. Big Als is considering purchasing equipment to replace the leased equipment. Big Als must purchase 10 units of each piece of equipment. Big Als can purchase equipment at the following prices: Equipment Price (per unit) Dough ball press $5,450 Assembly table 2,100 Cardboard cutter 4,100 Plastic sealer 2,695 Label installer 1,000

Required: A. Using NPV analysis, compare the present value of the lease payments with the cost of buying the equipment. Assuming a discount rate of 10 percent (before tax), which option is preferable? B. Big Als has the option of purchasing equipment from another supplier at a cost of $190,000. The supplier promises that the new equipment will reduce operating costs by $1,000 per month over the life of the equipment. Assuming a 10 percent discount rate (before tax), which option is preferable? C. Calculate the after-tax NPV for each option discussed previously. If purchased, all equipment will be depreciated over five years, using straight-line depreciation, and will have no salvage value. Big Als tax rate is 30 percent. Is your decision still the same? D. What factors other than cost savings should Big Als consider in these decision problems?