Question 8

Wse the following information for Problems 49. Sodheimer, Inc is evaluating whether it should lease or purchase a machine for continued operations. The machine costs a total of $860,000, including shipping and installation and falls into the MACRS 3-year class. (Noter Assume MACRS rates for Years 1 to 4 are 0.3333,0.4445, 0.1481 , and 0.0741 .) If bought, the machine would be used for four ycars and then sold at the end of the fourth year for $50,000. To finance the equipment, the corporation would obta simple interest loan, interest payable at the end of each year, at a before-tax cost of 9% In ad dition, a maintenance contract on the equipment would cost $20,000 per year, payable at the begin of each year. The maintenance expenses are tax deductible. per year, payable at the beginning of cach year. The lease would include maint in the 20% tax bracket. If there is a positive Net Advantage to Leasing the equipment. Otherwise, it will buy it. 7. What are the net cash flows for each year if the corporation decides to lease the equipment? a. $360,000.00 b. $288,000.00 c. $240,000.00 d. $192,000.00 8. What is the present value of the cost of leasing the equipment? a. $737,212.75 b. $694,033.16 c. $618,437.21 d. $584,302.63