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please show all work/formulas/explanation. will upvote! thank you in advance! PRACTICE LEASE QUESTION Paula's Private Jets (PPJ) is evaluating a potential lease agreement on a
please show all work/formulas/explanation. will upvote! thank you in advance!
PRACTICE LEASE QUESTION Paula's Private Jets (PPJ) is evaluating a potential lease agreement on a plane that costs $500,000 and falls into the MACRS 3-year class. The loan rate would be 8% and would be interest only over the 4-year period, with the principal due at the end if PPJ decided to borrow money and buy the asset rather than lease it. The loan payments would be made at the end of the year. The plane has a 4-year economic life, and its estimated residual value is $150,000. If PPJ buys the plane, it would purchase a maintenance contract that costs $25,000 per year, payable at the beginning of the year. The lease terms, which include maintenance, call for a $175,000 lease payment at the beginning of each year. PPJ's tax rate is 40%. Should the firm lease or buy? Calculate the Net Advantage (or Disadvantage) to Leasing Step by Step Solution
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