Suppose that National Waferonics has before it a proposal for a four-year financial lease. The firm constructs a table like Table. The bottom line of its table shows the lease cash flows:

These flows reflect the cost of the machine, depreciation tax shields, and the after-tax lease payments. Ignore salvage value. Assume the firm could borrow at 10% and faces a 35% marginal tax rate.
a. What is the value of the equivalent loan?
b. What is the value of the lease?
c. Suppose the machine’s NPV under normal financing is - $5,000. Should National Waferonics invest? Should it sign thelease?

TABLE Year 0 6 Cost of new bus Lost depreciation tax shield Lease Tax shield of lease Cash flow of lease +100 4.03 -16.9 2.02 16.9 7.00 -11.20 6.72 4.03 16.9 16.9 16.9 +5.92 5.92 5.92 +5.925.92 +5.92 10.99 ent -16.9_ -16.9 -16.9 +5.92 +5.92 +89.02-17.99 ent 22.19_ 15.02- 15.02 13.00