Input area:
Purchase price 6,100,000$
Year 1 depreciation 0.3333
Year 2 depreciation 0.4445
Year 3 depreciation 0.1481
Year 4 depreciation 0.0741
Salvage value 780,000$
Lease payment 1,480,000$
Security deposit 400,000$
Cost of debt 9%
Tax rate 21%
Alternative lease:
Lease payments 1,875,000$
Year 2 salvage value 3,200,000$
Output area:
1) Aftertax cost of debt 7.11%
Year 0 Year 1 Year 2 Year 3 Year 4
Saved purchase 6,100,000$
Lost salvage value (616,200)$
Lost depreciation tax shield (426,957)$ (569,405)$ (189,716)$ (94,922)
2) Book value in Year 2 1,355,420$
Year 0 Year 1 Year 2
Saved purchase 6,100,000$
Chapter 21
The Decision to Lease or Buy at Warf Computers