Harry Potter has decided to hang up his wand and would now like to finance...
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Finance
Harry Potter has decided to hang up his wand and would now like to finance some Light Sabers that he would need for the next 4 years, he is considering a leasing arrangement. The Light Sabers will become obsolete and worthless after 4 years. Harry will depreciate the cost of the Light Sabers on a straight-line basis over their 4-year life. Harry can borrow $6,000,000, which is the purchase price, at 10% and buy the tools, or he can make 4 equal end-of-year lease payments of $2,800,000 each and lease them. The loan obtained from Hogwarts bank is a 4-year simple interest loan, with interest paid at the end of the year. Harrys tax rate is 40%. Harrys annual maintenance fees associated with ownership are estimated at $150,000, but this cost would be borne by the lessor if Harry leases. What is the net advantage to leasing (NAL), in thousands? (Recommend removing 3 zeros from dollars and work in thousands.)
$133
$140
$147
$154
$161
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