I am needing help with my homework I cannot figure it out The X company is considering the

Question

I am needing help with my homework. I cannot figure it out.

The X company is considering the

acquisition of a new processor that has an estimated installed cost of $57,000. The processor has an expected life of 5 years and will be depreciated over a 5 year ACRS life to a zero salvage value. However, it is expected that the processor can be sold at that time for $6,000. If purchased, the entire $57,000 would be borrowed at an interest rate of 9%. A capital budgeting analysis resus in a positive NPV for the project. An aernative to purchase is to lease the asset for an annual lease payment of $13,500. The lease includes maintenance services estimated to cost Company C $3,000 per year if they were not included in the lease payment. Company C’s cost of capital is 11% and its marginal tax rate is 34%. Evaluate the purchase and lease options and make a recommendation of which is preferred.

ANSWERS
Option 1 – Buying a processor
Cost
57,000.00
Life
5.00 yrs
Depreciation
11,400.00
Salvage Value
6,000.00
Tax
34%
Depreciation Tax Shield
3,876.00
Cash Outflow
57000
Cash Inflow
3876
Pv of…
Finance