Your firm is considering leasing a new robotic milling control system. The lease lasts for 4 years.

Question:

Your firm is considering leasing a new robotic milling control system. The lease lasts for 4 years. The lease calls for 5 payments of $280,000 per year with the first payment occurring at lease inception. The system would cost $900,000 to buy and would be straight-line depreciated to a zero . The firm can borrow at 10%, and the corporate tax rate is 35%. What is the NPV of the lease?
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...