The S Company is considering the acquisition of a new processor used in its operation. The processor has an installed cost of $46,000 and is expected to have a useful life of 5 years. If purchased, the firmwould borrow the entire $46,000 at an interest rate of 9%. The processor would be depreciated over a 5 year ACRS life to a zero book value, but it is estimated that it could be sold for $5,000 after 5 years. A capital budgeting analysis indicates that purchase of the processor has a positive NPV. Alternatively, S Company can lease the processor for the 5 year period for an annual lease payment of $14,500. If the processor is leased, annual operating expenses of $2,500 will be paid by the lessor. If the equipment is purchased, the firm will incur this expense. S Company's cost of capital is 12% and its marginal tax rate is 35%.

1.If S Company borrows to purchase the processor, what is the annual loan payment?

$11,826

$9,579

$13,364

$11,353

2.If S Company borrows to purchase the processor, the interest paid on the loan in year 2 is:

$3,448

$2,759

$2,965

$3,276

3.If S Company borrows to purchase the processor, total tax deductible expenses for year 3 are:

$14,854

$15,917

$15,724

$15,144

4.If S Company borrows to purchase the processor, the net cost of owning for year 3 is:

$9,127

$9,699

$8,347

$8,555

5.The present value of the costs of owning is:

$38,170

$40,001

$39,049

$39,342

6.The present value of the cost of leasing the processor is:

$41,721

$42,245

$41,882

$42,407