The S company is considering the acquisition of a new processor used in its operation. The processor has an installed cost of 55,000 and is expected to have a useful life of 5 years. If purchased the firm would borrow the entire 60,000 at an interest rate of 10%. The processor would be depreciated over a 5 year ACRS life to a zero book value, but its estimated that it could be sold for 7000 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 for an annual lease payment of 15,500. If the processor is leased annual operating expenses of 2,900 will be paid by the lessor. IF the equipment is purchased the firm will incur this expense. S company cost of capital is 12% and its marginal tax is 35%

7. If s company borrows to purchase the processor what is the annual loan payment.

10,331

12,949

15,428

13,775

8.If s company borrows to purchase the processor the interest paid on the loan in year 2 is

3,248

3,650

3,504

2,993

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

18,098

17,290

18,676

17,636

10;. If s company borrows to purchase the processor the net cost of owning for year 3:

10,624

11,168

10,018

9,595

11. the present value of the cost of owning is

47,596

45,324

46,635

46,460

12.the present value of cost of leasing the processor

45,755

46,684

45,961

46,168