The Tasha Corporation needs a new pipe-boring machine that can be purchased for $10,000.  The machine will be depreciated using MACRS with a 5-year class.  Tasha will use the machine for 5 years and then sell it with an anticipated salvage value of $2000. A maintenance contract will be purchased at a cost of $500 per year with payments made in advance. Tasha can obtain a bank loan with an interest rate of 7.5% and the company’s tax rate is 34%.

(EXCEL TEMPLATE) 7.) Now suppose that Johnson Leasing Corporation has offered to lease the same machine to Tasha for lease payments of $3,000 paid at the end of each of the next five years.  Maintenance is included in the annual lease amount.  The lease satisfies IRS rules to qualify for a guideline lease.  What is the NPV of leasing?

7.  What is the NPV of Leasing?
	0	1	2	3	4	5
Lease Pmt
Tax Savings
Total Cash Flow
NPV-Leasing