Answer to Question #10720 in Finance for Giorgi

Question

Buster’s Beverages is negotiating a lease on a new piece of equipment that would cost $100,000 if
purchased. The equipment falls into the MACRS 3‐year class, and it would be used for 3 years and
then sold, because the firm plans to move to a new facility at that time. The estimated value of the
equipment after 3 years is $30,000. A maintenance contract on the equipment would cost $3,000
per year, payable at the beginning of each year. Alternatively, the firm could lease the equipment
for 3 years for a lease payment of $29,000 per year, payable at the beginning of each year. The
lease would include maintenance. The firm is in the 20% tax bracket, and it could obtain a 3‐year
simple interest loan, interest payable at the end of the year, to purchase the equipment at a before‐
tax cost of 10%. If there is a positive Net Advantage to Leasing the firm will lease the equipment.
Otherwise, it will buy it. What is the NAL?