PonchoParts, Inc. manufactures reproduction parts for classic cars. The firm needs a computer-operated turret lathe that costs $440,000. It can borrow at 9.5%. The lathe will be used for five years, after which it will have a salvage value of $50,000. Enterprising Leasing, Inc. will lease the equipment to the firm for $100,000 per year. The firm's tax rate is 34%. If the lathe belongs in a 30% CCA class, what is the net advantage to leasing (NAL)?

Question

Quizplus · Accepted Answer

The net advantage to leasing (NAL) is calculated by comparing the after-tax cost of leasing to the after-tax cost of owning. The NAL is positive when leasing is more advantageous than owning. In this case, the NAL is $105, indicating a slight advantage to leasing.