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Problem 21-14 Lease or Buy Wolfson Corporation ha...

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Problem 21-14 Lease or Buy Wolfson Corporation has decided to purchase a new machine that costs $5 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 35 percent. The Sur Bank has offered Wolfson a four-year loan for $5 million. The repayment schedule is four yearly principal repayments of $1,250,000 and an interest charge of 11 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 $1.51 million per year are due at the beginning of each of the four years of the lease. Requirement 1: (a) Calculate the NAL. (Do not include the dollar sign ($). Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places. (e.g., 32.16)) NAL $ (b) Should Wolfson lease the machine or buy it with bank financing? Buy or lease Requirement 2: What is the annual lease payment that will make Wolfson indifferent to whether it leases the machine or purchases it? (Do not include the dollar sign ($). Enter your answer in dollars, not millions of dollars (e.g., 1,234,567). Round your answer to 2 decimal places. (e.g., 32.16)) PMT $

 

Paper#3985 | Written in 18-Jul-2015

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