Kohers Inc. 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 has the option to buy these tools. 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 interest rate of 10% and buy the tools. The loan payments would be made at the end of each year. If it decides to lease 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%. The Total Cash Outflows from the Cost of Purchase are the following: (Year 1)+208; (Year 2) +208; (Year 3) -4,592; all occurring at the end of respective years. Calculate the leasing cash outflows, and compare the Present Values. What is the net advantage to leasing (NAL), in thousands? (Suggestion: Delete 3 zeros from dollars and work in thousands.), , (a) $96, (b) $106, (c) $112, (d) $117, (e) $123
Hi,Thanks for the question. The answer is (b) $106,If you need the calculations, please let me know by replying. Hope this helps!
BA degree and Certified Public Accountant