High electricity costs have made Farmer Corporation’s chicken-plucking machine economically worthless. Only two machines are available to replace it. The International Plucking Machine (IPM) model is available only on a lease basis. The lease payments will be $77,000 for five years, due at the beginning of each year. This machine will save Farmer $27,000 per year through reductions in electricity costs. As an alternative, Farmer can purchase a more energy-efficient machine from Basic Machine Corporation (BMC) for $390,000. This machine will save $37,000 per year in electricity costs. A local bank has offered to finance the machine with a $390,000 loan. The interest rate on the loan will be 11 percent on the remaining balance and will require five annual principal payments of $78,000. Farmer has a target debt-to-asset ratio of 68 percent. Farmer is in the 40 percent tax bracket. After five years, both machines will be worthless. The machines will be depreciated on a straight-line basis.

a. What is the NAL of leasing? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

NAL        $

b. How much debt is displaced by this lease? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

PV          $