Mattel, Inc. has decided to acquire a new equipment at a cost of $760,000. The equipment...

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Mattel, Inc. has decided to acquire a new equipment at a cost of$760,000. The equipment has an expected life of 6 years and will bedepreciated using 5-year MACRS with rates of .20, .32, .192, .1152,.1152, and .0576 (note that 5-year MACRS depreciation actuallytakes place over 6 years). There is no actual salvage value. MassFinancing has offered to lease the equipment to Mattel for $148,000a year for 6 years. Mattel has a cost of equity of 10.8 percent, apre-tax cost of debt of 6.5 percent, and a marginal tax rate of 25percent. Should Mattel lease or buy? Mattel should lease becauseNPV = $21,542.69 Mattel should lease because NPV = $27,630.06Mattel should buy because NPV = $23,514.35 Mattel should buybecause NPV = $28,375.29 Mattel should lease because NPV =$18,589.72

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The correct answer is Mattel should lease because NPV 2763006Please see the See Answer

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Mattel, Inc. has decided to acquire a new equipment at a cost of$760,000. The equipment has an expected life of 6 years and will bedepreciated using 5-year MACRS with rates of .20, .32, .192, .1152,.1152, and .0576 (note that 5-year MACRS depreciation actuallytakes place over 6 years). There is no actual salvage value. MassFinancing has offered to lease the equipment to Mattel for $148,000a year for 6 years. Mattel has a cost of equity of 10.8 percent, apre-tax cost of debt of 6.5 percent, and a marginal tax rate of 25percent. Should Mattel lease or buy? Mattel should lease becauseNPV = $21,542.69 Mattel should lease because NPV = $27,630.06Mattel should buy because NPV = $23,514.35 Mattel should buybecause NPV = $28,375.29 Mattel should lease because NPV =$18,589.72