The Xhaust Company is considering the acquisition of a machine that costs $150,000 if bought today. The company can buy or lease the machine. If Xhaust buys the machine, the machine would be depreciated as a 3-year MACRS asset and is expected to have a salvage value of $5,000 at the end of the 5-year useful life. If leased, the

payments are $35,000 each year for four years, payable at the beginning of each year. The marginal tax rate for Xhaust is 30% and the cost of capital is 12%. Assume that the lease is a net lease, that any tax benefits are realized in the year of the expense, and that there is no investment tax credit.

1. Calculate the depreciation for each year in the case of the purchase of this machine.
2. Calculate the direct cash flows from leasing initially and for each of the five years.
3. Calculate the adjusted discount rate.
4. Calculate the value of the lease.
5. Calculate the amortization of the equivalent loan

ErCises All problems are available in MyFinanceLab. -1 You are a summer intern at the office of a local tax preparer. To test your basic knowledge of financial statements, your manager, who graduated from your alma mater 2 years ago, gives you the following list of accounts and asks you to prepare a simple income statement using those accounts. a. Arrange the accounts into a well-labeled income statement. Make sure you label and solve for gross profit, operating profit, and net profit before taxes. b. Using a \35 tax rate, calculate taxes paid and net profit after taxes. c. Assuming a dividend of \\( \\$ 1.10 \\) per share with 4.25 million shares outstanding, calculate EPS and additions to retained earnings