Kooky Cola has just completed a NPV calculation on an investment in a new plastic moulding machine to make pop bottles. The NPV calculation was a negative (11,000). Kooky first rejected the investment proposal because it has a negative NPV, but, a member of LC's Business Finance class explained to them the need to calculate NAL. The machine would cost 175,000 and have a CCA rate of 20% and a salvage value at the end of 5 years of $10,000. The lease payments are $40,000 a year for 5 years and each payment would occur at the beginning of each year.

Should Kooky Cola lease the pop machine if the firm's before-tax cost of debt is 15%, the firm's tax rate is 40%.

What is the Present value of the tax shield?

What is the present value of the salvage value?

What is the cost of owning?

What is the NAL (net advantage leasing)?

What is the NPV (Lease) of this investment?