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Wolfson Corporation has decided to purchase a new machine that costs $2.1 million. The machine will be depreciated on a straight-line basis and will be
Wolfson Corporation has decided to purchase a new machine that costs $2.1 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 24 percent. The Sur Bank has offered Wolfson a fouryear loan for $2.1 million. The repayment schedule is four yearly principal repayments of $525,000 and an interest charge of 9 percent on the outstanding balance of the loan at the beginning of each year. Both principal repayments and interest are due at the end of each year. Cal Leasing Corporation offers to lease the same machine to Wolfson. Lease payments of $640,000 per year are due at the beginning of each of the four years of the ease. a. What is the NAL of leasing for Wolfson? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) b. What is the annual lease payment that will make Wolfson indifferent to whether it leases the machine or purchases it? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)
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