Surna Company has decided to acquire a new equipment at a cost of $702,000. The...
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Surna Company has decided to acquire a new equipment at a cost of $702,000. The equipment has an expected life of 6 years and will be depreciated using 5-year MACRS with rates of .20, .32, .192, .1152, .1152, and .0576 (note that 5-year MACRS depreciation actually takes place over 6 years). There is no actual salvage value. Lowell Financial Services has offered to lease the equipment to Surna for $142,000 a year for 6 years, with lease payment at the end of each year. Surna has a cost of equity of 9.4 percent, a pre-tax cost of debt of 5 percent, and a marginal tax rate of 25 percent. Should Surna lease or buy?
| Surna should lease because NPV = $8,214.50 | ||
| Surna should lease because NPV = $15,530.61 | ||
| Surna should buy because NPV = $9,020.36 | ||
| Surna should buy because NPV = $16,308.58 | ||
| Surna should buy because NPV = $19,410.93 |
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