22 Jul WHAT IS THE NAL OF THE LEASE
Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It can obtain Show more Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It can obtain a bank loan for 100% of the purchase price or it can lease the machinery. Assume that the following facts apply: The machinery falls into the MACRS 3-year class. Under either the lease or the purchase Big Sky must pay for insurance property taxes and maintenance. The firms tax rate is 40%. The loan would have an interest rate of 14%. (Suppose that only interest payments are made at the end of each year and the whole loan will be paid back at the end of year 4.) The lease terms call for $400000 payments at the end of each of the next 4 years. Big Sky Mining has no use for the machine beyond the expiration of the lease and the machine has an estimated residual value of $200000 at the end of the 4th year. MACRS Year Allowance Factor 1 0.3333 2 0.4445 3 0.1481 4 0.0741 What is the NAL of the lease? Round your answer to the nearest cent. Show less
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