Question

Aztec College needs a new computer. It can either buy it for $250,000 or lease it from Macrolease company. The lease terms require Aztec to make six annual payments (prepaid) of $62,000. Macrolease needs to pay six annual maintenance costs (prepaid) of $10,000. Macrolease pays tax at 40%. Macrolease can depreciate the computer for tax purposes over 5 years starting from year 1. The computer will have a residual value of $50,000 at the end year 5. Macrolease’s before tax cost of capital is 8%. For depreciation, Macrolease adopts MACRS method. Hint; please use after tax cost of capital.

*. Depreciation schedule for 5 years under MACRS (IRS required): 20%, 32%, 19.2%, 11.52%, 11.52%, 5.76% .

What is the NPV of lease for Macrolease ?

A.	$96,540
	B.	$83,467
	C.	-$108,321
	D.	$28,880
	E.	$52,346
	F.	$-$36,408
	G.	$120,430
	H.	$273,521

Answer 1