Elon Inc. is a solar battery manufacturer. It would like to lease a specialized equipment to...

 

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Elon Inc. is a solar battery manufacturer. It would like to lease a specialized equipment to make the production of its batteries more efficient. Elon Inc. can lease the equipment from another company, Galaxy Inc., that owns it. Another option is to purchase the equipment. The equipment costs $7,700,000. Because the equipment would be used so much, it will be valueless in four years. Another option that Elon Inc. has is to lease the equipment for $2,220,000 per year for four years from another company, Galaxy Inc., that owns it. Elon Inc. is in the 24 percent income tax rate bracket. It can borrow at 7 percent pre-tax rate. Additional information: assume that if purchased the solar batteries production equipment would be depreciated according to the three- year property class under the MACRS depreciation method. Calculate Elon Inc.'s net advantage to leasing, i.e., NAL. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. If your answer is negative, don't forget to put the minus sign.) NAL Elon Inc. is a solar battery manufacturer. It would like to lease a specialized equipment to make the production of its batteries more efficient. Elon Inc. can lease the equipment from another company, Galaxy Inc., that owns it. Another option is to purchase the equipment. The equipment costs $7,700,000. Because the equipment would be used so much, it will be valueless in four years. Another option that Elon Inc. has is to lease the equipment for $2,220,000 per year for four years from another company, Galaxy Inc., that owns it. Elon Inc. is in the 24 percent income tax rate bracket. It can borrow at 7 percent pre-tax rate. Additional information: assume that if purchased the solar batteries production equipment would be depreciated according to the three- year property class under the MACRS depreciation method. Calculate Elon Inc.'s net advantage to leasing, i.e., NAL. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. If your answer is negative, don't forget to put the minus sign.) NAL

Answer rating: 100% (QA)

Solution To calculate Elon Incs net advantage to leasing NAL we need to compare the aftertax cost of ... View the full answer