Question

Lotech welding can purchase a machine for $175,000 and depreciate it as 5-year macrs prop- erty. annual maintenance would be $9800, and its salvage value after 8 years is $15,000. the machine can also be leased for $35,000 per year on an “all costs” inclusive lease (maintenance costs included). lease payments are due at the beginning of each year, and they are tax-deductible. the firm’s com-bined tax rate for state and federal income taxes is 40%. if the firm’s after-tax interest rate is 9%, which alternative has the lower eac and by how much?

• Use Excel to complete the problem
• Create a single worksheet showing the comparison of the alternatives.  
  • Purchase Alternative should have a depreciation schedule and a tax table
  • Lease Alternative will have only a tax table
• The tax tables should follow the conventions discussed in this unit.
• Use cell references for all calculations, discrete numbers are not allowed in calculations.
• The lease payment is tax deductible, therefore the price (-$35,000) is considered taxable income and the company will receive a tax credit for the lease payment. (FYI - this usually doesn't happen in real life)
• Answer the question

Please Show cell References. I already did the MACRS method and got this for my depreciation:

1	$ 175,000.00	10%	$    17,500.00	$               157,500.00
2	$ 157,500.00	32%	$    50,400.00	$               107,100.00
3	$ 107,100.00	19.20%	$    20,563.20	$                 86,536.80
4	$    86,536.80	11.52%	$      9,969.04	$                 76,567.76
5	$    76,567.76	11.52%	$      8,820.61	$                 67,747.15

Answer 1

Hence,

I would recommend the purchase of Machinery for $ 1,75,000 and use it for 5 years and sell it as it has better tax benefits over the year.