Question 14. 14.
Waldrop Corporation is considering a leasing arrangement
to finance some manufacturing tools that it needs for the next 3
years. 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 firm’s 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. What is the
net advantage to leasing (NAL), in thousands? (Suggestion:
Delete 3 zeros from dollars and work in thousands.)
(Points : 20)
“#“”
"Get
15%discount on your first
3 orderswith us"
Use the following coupon
"FIRST15"
Other samples, services and questions:
When you use PaperHelp, you save one valuable — TIME
You can spend it for more important things than paper writing.
