Lease Valuation. Suppose that National Waferonics has before it a proposal for a four’ year financial lease.
The firm constructs a table like Table . The bottom line of its table shows the lease cash flows:
| year | 0 | 1 | 2 | 3 |
| Lease cash flow | +62,000 | -26,800 | -22,200 | -17,600 |
These flows reflect the cost of the machine, CCA tax shields, and the after-tax lease payments. Ignore salvage value. Assume the firm could borrow at 10 percent and faces a 30 percent marginal tax rate.
a. What is the value of the equivalent loan?
b. What is the value of the lease?
c. Suppose the machine’s NPV under normal financing is $5,000. Should National Waferonics invest?
Should it sign the lease?
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