A few points should be clarified with respect to the

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Unformatted text preview: with respect to the calculations in Table 16.2. The major cash outflows are the total loan payment for each year given in column 1 and the annual maintenance cost in column 2. The sum of these two outflows is reduced by the tax savings from writing off the maintenance, depreciation, and interest expenses associated with the new machine and its financing. The resulting cash outflows are the after-tax cash outflows associated with the purchase alternative. Step 3 The present values of the cash outflows associated with the lease (from Step 1) and purchase (from Step 2) alternatives are calculated in Table 16.3 using the firm’s 6% after-tax cost of debt.7 Applying the appropriate present value interest factors given in columns 2 and 5 to the aftertax cash outflows in columns 1 and 4 results in the present values of lease and purchase cash outflows in columns 3 and 6, respectively. The sum of the present values of the cash outflows for the leasing alternative is given in column 3 of Table 16.3, and the sum of those for the...
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This document was uploaded on 01/19/2014.

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