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Big Sky Mining Company must install 1.5 million of...




Big Sky Mining Company must install 1.5 million of new machinery it its Nevada mine. It can obtain a bank loan for 100% of the purchase price, or it can lease the machinery. Assume that the following facts apply: (1)The machinery falls into the MACRS 3-year class. (2)Under either the lease or the purchase, Big Sky must pay for insurance, propery taxes, and maintenance. (3)The firms tax rate is 40%. (4)The loan would have an interest rate of 15%. (5)The lease terms call for $400,000 payments at the end of each of the next 4 years. (6)Assume that Big Sky Mining has no use for the machine beyond the expiration of the lease. The machine has an estimated residual value of $250,000 at the end of the 4th year. Question: What is the NAL of the lease? (Net Advantage to Leasing)


Paper#10232 | Written in 18-Jul-2015

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