Carmichael Cleaners needs a new steam finishing machine that costs $100,000. The company is evaluating whether it should

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Carmichael Cleaners needs a new steam finishing machine that
costs $100,000. The company is evaluating whether it should lease
or purchase the machine. The equipment falls into the MACRS 3-year
class, and it would be used for 3 years and then sold, because the
firm plans to move to a new facility at that time. The estimated
value of the equipment after 3 years is $30,000. A maintenance
contract on the equipment would cost $3,000 per year, payable at
the beginning of each year. Alternatively, the firm could lease the
equipment for 3 years for a lease payment of $29,000 per year,
payable at the beginning of each year. The lease would include
maintenance. The firm is in the 20% tax bracket, and it could
obtain a 3-year simple interest loan, interest payable at the end
of the year, to purchase the equipment at a before-tax cost of 10%.
If there is a positive Net Advantage to Leasing the firm will lease
the equipment.
Otherwise, it will buy it. What is the NAL?
(Note: Assume MACRS rates for Years 1 to 4 are 0.3333, 0.4445,
0.1481, and 0.0741.)
Cost of Equipment
$100,000
Life of Equipment
3 years
Salvage Value
$30,000
Tax Rate
20%
Maintenance
$3,000 per year
Interest on Loan
10% Simple