Redstone Corporation is considering a leasing arrangement to finance some special manufacturing tools that it needs...

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Finance

Redstone Corporation is considering a leasing arrangement tofinance some special manufacturing tools that it needs forproduction during the next three years. A planned change in thefirm's production technology will make the tools obsolete after 3years. The firm will depreciate the cost of the tools on astraight-line basis. The firm can borrow $4,800,000, the purchaseprice, at 10 percent on a simple interest loan to buy the tools, orit can make three equal end-of-year lease payments of $2,100,000.The firm's tax rate is 40 percent. Annual maintenance costsassociated with ownership are estimated at $240,000. What is thenet advantage to leasing (NAL)? ANSWER IS ROUNDED TO NEAREST$100.00
$106,200
$ 0
$362,800
$647,900
$433,100

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Redstone Corporation is considering a leasing arrangement tofinance some special manufacturing tools that it needs forproduction during the next three years. A planned change in thefirm's production technology will make the tools obsolete after 3years. The firm will depreciate the cost of the tools on astraight-line basis. The firm can borrow $4,800,000, the purchaseprice, at 10 percent on a simple interest loan to buy the tools, orit can make three equal end-of-year lease payments of $2,100,000.The firm's tax rate is 40 percent. Annual maintenance costsassociated with ownership are estimated at $240,000. What is thenet advantage to leasing (NAL)? ANSWER IS ROUNDED TO NEAREST$100.00$106,200$ 0$362,800$647,900$433,100