Sadik Industries must install $1 million of new machinery in its Texas plant. It can obtain a 6 -year bank loan for 100% of the cost at a 12% interest rate with equal payments at the end of each year. Sadik's tax rate is 25%. The equipment falls in the MACRS 3 -year class. (The depreciation rates for 1 through Year 4 are equal to 0.3333,0.4445,0.1481, and 0.0741. Alternatively, a Texas investment banking firm that represents a group of investors can arrange a guideline lease calling for payments of $320,000 at the end of each year for 3 years. Under the proposed lease terms, the Sadik must pay for insurance, property taxes, and maintenance. remaining depreciation expenses would be from Year 4 through Year 6). On the time line, Sadik would show the cost of purchasing the used equipment at Year 3 and its depreciation expenses starting at Year 3. To assist management in making the proper lease-versus-buy decision, you are asked to answer the following questions: a. What is the cost of owning? Enter your answer as a positive value. Do not round intermediate calculations. Round your answer to the nearest dollar. $ b. What is the cost of leasing? Enter your answer as a positive value. Do not round intermediate calculations. Round your answer to the nearest dollar. $ c. What is the net advantage of leasing? Do not round intermediate calculations. Round your answer to the nearest dollar. $ Should Sadik take the lease? Explain. Since the cost of leasing the machinery is than the cost of owning it, the firm should the equipment. d. Consider the $190,000 estimated residual value. How high could the residual value get before the net advantage of leasing falls to zero? Do not round intermediate calculations. Round your answer to the nearest dollar. Sadik Industries must install $1 million of new machinery in its Texas plant. It can obtain a 6 -year bank loan for 100% of the cost at a 12% interest rate with equal payments at the end of each year. Sadik's tax rate is 25%. The equipment falls in the MACRS 3 -year class. (The depreciation rates for 1 through Year 4 are equal to 0.3333,0.4445,0.1481, and 0.0741. Alternatively, a Texas investment banking firm that represents a group of investors can arrange a guideline lease calling for payments of $320,000 at the end of each year for 3 years. Under the proposed lease terms, the Sadik must pay for insurance, property taxes, and maintenance. remaining depreciation expenses would be from Year 4 through Year 6). On the time line, Sadik would show the cost of purchasing the used equipment at Year 3 and its depreciation expenses starting at Year 3. To assist management in making the proper lease-versus-buy decision, you are asked to answer the following questions: a. What is the cost of owning? Enter your answer as a positive value. Do not round intermediate calculations. Round your answer to the nearest dollar. $ b. What is the cost of leasing? Enter your answer as a positive value. Do not round intermediate calculations. Round your answer to the nearest dollar. $ c. What is the net advantage of leasing? Do not round intermediate calculations. Round your answer to the nearest dollar. $ Should Sadik take the lease? Explain. Since the cost of leasing the machinery is than the cost of owning it, the firm should the equipment. d. Consider the $190,000 estimated residual value. How high could the residual value get before the net advantage of leasing falls to zero? Do not round intermediate calculations. Round your answer to the nearest dollar
