Please dont answer without including an excel. This question has been attempted on Chegg before but they have not included an excel.

High energy costs have made a piece of equipment in your firms production process obsolete. Two machines are available to replace the existing equipment. Here are the details for Option A and Option B:

Option A: Lease

1) Lease payments of $65,000 per year

2) 5 years, due at the beginning of each year

3) Save $15,000 per year in energy bills

Option B: Purchase:

1) Purchase for $330,000

2) Energy savings of $25,000 per year

3) Bank will finance the loan at 10 percent on the remaining balance

4) Five principal payments of $66,000 will be required by the bank

Please note:

The firm has a target debt-to-asset ratio of 67 percent. The firm is in the 34 percent tax bracket.

In each option, straight-line depreciation and equipment will be worthless after 5 years.

What is the NPV of the Purchase Option, including detailed cash flows for years 0 to 6. Do not forget tax shield. Hint notice that the energy saving between the two options are different so you must include them.