True Shield Enterprises plans to operate a sightseeing boat along the Charles River in Boston In negotiating the purchase of a new vessel from Yachts Dynamic Inc , True Shield learned that Yachts Dynamic would lease the boat to them as an alternative to selling it outright Through such an arrangement, True Shield would not pay the $2,000,000 purchase price but would lease for $320,000 annually True Shield expects the boat to last for 15 years and have a salvage value of $200,000 For tax purposes, however, the boat is 7 year property (that is, the cost of the boat would be recovered over a period of 8 years, using the MACRS rates for 7 year property provided in Exhibit 22 4 ) The annual net cash inflow, excluding any consideration of lease payments and income tax, is expected to be $600,000 The company 's income tax rate is 40 , and its cost of capital is 14 Required Make a recommendation to purchase or lease the boat, using the net present value method to evaluate each alternative

Question: True-Shield Enterprises plans to operate a sightseeing boat along the Charles River in Boston. In negotiating the purchase of a new vessel from Yachts Dynamic

True-Shield Enterprises plans to operate a sightseeing boat along the Charles River in Boston. In negotiating the purchase of a new vessel from Yachts Dynamic Inc., True-Shield learned that Yachts Dynamic would lease the boat to them as an alternative to selling it outright. Through such an arrangement, True-Shield would not pay the $2,000,000 purchase price but would lease for $320,000 annually. True-Shield expects the boat to last for 15 years and have a of $200,000. For tax purposes, however, the boat is 7-year property (that is, the cost of the boat would be recovered over a period of 8 years, using the MACRS rates for 7-year property provided in Exhibit 22-4.)
The annual net cash inflow, excluding any consideration of lease payments and income tax, is expected to be $600,000. The company's income tax rate is 40%, and its cost of cap¬ital is 14%.
Required:
Make a recommendation to purchase or lease the boat, using the method to evaluate each alternative.

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