In: Accounting
After a critical analysis of the purchase options, we have narrowed our acquisition of the proposed factory machine to two candidate, KMP Leasing Company and GML Leasing Corporation.
Below are the details of responses from the shot listed companies:
Lease Terms – KMP Leasing Company
Purchase Price of machine $ 200000
Lease term 7 years
Estimated useful life of asset 10 years
Scrap value as a percentage of purchase price 20%
Depreciation method - straight method
Lease payments per year $33000 Marginal tax rate 21%
Current borrowing rate 7%
Determine the Net Present Value (NPV ) for each lease term using the after tax cost of borrowing ( marginal tax rate ) , and which lease term has the best deal for the company?