Question
Please show work ToyCorp.is consideringacquiring a new machine for its plant operations. The company is analyzing whether it should purchase or lease the machine. Themachine
Please show work
ToyCorp.is consideringacquiring a new machine for its plant operations. The company is analyzing whether it should purchase or lease the machine. Themachine hasan estimated 4-year life andcosts $56,000 and falls into the MACRS 3-year class. If the firm borrows and buys the machine, the loan rate would be 10%, and the loan would be amortized over the machine's 4-year life. The required loan (including interest) payments would be made at the end of each year. The machine will be used for 4 years, at the end of which time it will be sold at an estimated residual value of $12,000. If Greshakbuys the machine, it would purchase a maintenance contract that costs $4,000 per year, payable at the end of each year.
The lease terms, which include maintenance, requirea $17,000 lease paymentto be made at the beginning of each year for four (4) years. Toy's tax rate is 30%. What is the net advantage to leasing? (Note: Assume MACRS rates for Years 1 to 4 are 0.3333, 0.4445, 0.1481, and 0.0741 (per the Federal Income Tax Code)).
a. $1,210 b. $1,425 c. $1,688 d. $2,107 e. $2,225
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