Use the information to the right to answer the questions below.

Healthcare Safety Products Inc. needs specialized machinery to produce sterile medical equipment. The firm may lease or buy.

If the firm buys, it will need to pay for maintenance of the machinery.

Estimate the present value of leasing cash flows $($tax$-$oriented lease$)$ using the information below.

Estimate the present value of cash flows from taking a loan and buying the equipment using the information below.

Compute the Net Advantage of Leasing $($NAL$).$

Which method is cheaper, leasing or buying?

Machinery cost $1,327$ thousand Tax rate $35\%$

Machinery life $4$ years $($straight$-$line depreciation$)$ Interest rate on loan $10\%$

Salvage value $0$ thousand

Annual maintenance $27$ thousand, beginning of each year

Lease term $4$ years

Leasing charge $415$ thousand, beginning of each year