To finance some manufacturing tools it needs for the next 3 years, Wall Corp. is considering a leasing arrangement. The tools will be obsolete and worthless after 3 years. The firm will depreciate the cost of the tools on a straight-line basis over their 3-year life. It can borrow $4,800,000, the purchase price, at 10% and buy the tools, or it can make 3 equal end-of-year lease payments of $2,100,000 each and lease them. The loan obtained from the bank is a 3- year simple interest loan, with interest paid at the end of the year. The firms tax rate is 40%. Annual maintenance costs associated with ownership are estimated at $240,000, but this cost would be borne by the lessor if it leases.

a.) Figure the annual cash flows, then the Present Value of the cash flow stream under both scenarios.

b.) Compare these amounts to determine the Net Advantage to Leasing (NAL).

c.) Should Wall Corp. buy or lease the tools?

Please show workings(calculations), not on spreadsheets.