Bev's Beverages Is Negotiating a Lease on a New Piece

Multiple Choice

Bev's Beverages is negotiating a lease on a new piece of equipment that would cost $80,000 if purchased.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 $25,000.A maintenance contract on the equipment would cost $2,500 per year,payable at the beginning of each year.Alternatively,the firm could lease the equipment for 3 years for a lease payment of $23,000 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 8%.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: MACRS rates for Years 1 to 4 are 0.33,0.45,0.15,and 0.07.)

A) $2,852
B) $2,994
C) $3,144
D) $3,301
E) $3,466