Big Sky Mining Company must install $20,100.00of 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 firm's tax rate is37.20%.
The loan would have an interest rate of10.02%. (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 $4,315.00payments 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 $2,170.00at the end of the 4th year.
MACRS 3-yeardepreciation schedule
Depreciation schedule????? ????? ?????
Year????? 1????? 2????? 3????? 4
????? 0.3333????? 0.4445????? 0.1481????? 0.0741
Depreciation?????$ 6,699.33????? $ 8,934.45????? $ 2,976.81????? $ 1,489.41
Remaining BV?????$ 13,400.67????? $ 4466.22????? $ 1,489.41????? $?5.01e?010
What is the NAL of the lease? Round your answer to the nearest dollar.
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