Question: Lease Financing
To finance some manufacturing tools it needs for the next 3 years, Waldrop Corporation is considering a leasing arrangement. The tools will be obsolete and worthless after 3 years.
The firm will depreciate the cost of the tools on a straight-line basis over their 3-year life. It can borrow $4,800,000, the purchase price, at 10% and buy the tools, or it can make 3 equal end-of-year lease payments of $1,700,000 each and lease them.
The loan obtained from the bank is a 3-year simple interest (non-amortized) loan, with interest paid at the end of the year and the principal paid in Year 3 (refer to Problem 19-4 in the text).
The firm's tax rate is 40%. What is the net advantage to leasing (NAL), in thousands?
I need Accurate calculations of this assignment in Excel. Nice explanation would be appreciated.