Aquadus is deciding between leasing a new machine or purchasing the machine outright.
It costs $1,000,000(See : Asset's Cost) and can be leased over 7 years (See: Loan/lease term years)
with payments being made at the beginning of each year
The lessor calculates the lease payments based on an expected return of 8.2% (see; Interest rate for leasing) over the 7 years. (See; loan/lease terms)
(Ignore possible residual value of equipment to lessor.)
The lease is a net lease.
The firm is in the 21% marginal tax bracket. (See; Tax Rate)
If bought, the equipment is expected to have a final salvage value of $19000.(See; Salvage Value)
The purchase of the equipment will result in a depreciation schedule of 20%, 32%, 19.2%, 11.52%, 11.52%, and 5.76%
for the first six years (5-year property class) based on a $125,000 depreciable base. (See; Machine's cost)
Loan payments are based on a 7.8% loan with payments occurring at the beginning of each period. (See; Interest rate for term loan)