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Problem 1. (15 points). Kemp Corporation is eval...




Problem 1. (15 points). Kemp Corporation is evaluating whether to lease or purchase equipment. The equipment will cost $500,000 if purchased, and the entire amount will be financed by a bank loan at an annual interest rate of 10 percent. At the end of 4 years, the company expects to sell the equipment for $60,000. The equipment falls in the MACRS 3-year class. The firm's tax rate is 30 percent. The lease terms call for payments of $100,000 for 4 years, payable at the beginning of the year. MACRS % by year 0.33 0.45 0.15 0.07 a. Calculate the cost of purchasing the equipment. b. Calculate the cost of leasing the equipment. c. Calculate the NAL. Should the firm purchase or lease the equipment? Why?


Paper#7113 | Written in 18-Jul-2015

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