Kohers Inc is considering a leasing arrangement to finance

some manufacturing
Kohers Inc. is considering a leasing arrangement to finance some manufacturing tools that it
needs for the next 3 years. The tools will be obsolete and worthless after 3 years. The firm has
the option to buy these tools. The firm will depreciate the cost of the tools on a straight-line
basis over their 3-year life. It can borrow $4,800,000, the purchase price, at interest rate of 10%
and buy the tools. The loan payments would be made at the end of each year. If it decides to
lease or it can make 3 equal end-of-year lease payments of $2,100,000 each and lease them.
The loan obtained from the bank is a 3-year simple interest loan, with interest paid at the end of
the year. The firm's tax rate is 40%. The Total Cash Outflows from the Cost of Purchase are the
following: (Year 1) + 208; (Year 2) +208; (Year 3) -4,592; all occurring at the end of respective
years. Calculate the leasing cash outflows, and compare the Present Values. What is the net
advantage to leasing (NAL), in thousands? (Suggestion: Delete 3 zeros from dollars and work in
thousands.)(a) $96(b) $106(c) $112(d) $117(e) $123 View Solution:
Kohers Inc is considering a leasing arrangement to finance some manufacturing
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