Reynolds Corporation plans to purchase equipment at a cost of $5 million. The company's tax-rate is 21%,
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Question:
Reynolds Corporation plans to purchase equipment at a cost of $5 million. The company's tax-rate is 21%, the equipment's depreciation would be $1,000,000 per year for 5 years, and no salvage value is expected. If the company leased the asset on a 5-year lease, the payment would be $1,100,000 at the beginning of each year. If Reynolds borrowed and bought, the bank would charge 10 percent interest on the loan.
a. Calculate the cost of purchasing the equipment with debt.
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b. Calculate the cost of leasing the equipment.
c. Calculate NAL? Should the company buy or lease the equipment? Why?
Related Book For
Financial Management for Public Health and Not for Profit Organizations
ISBN: 978-0132805667
4th edition
Authors: Steven A. Finkler, Thad Calabrese
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