1. Mary is unsure how to acquire a new asset for her business. She has two options: a. For the first option-she can buy it on January 1, 2021 paying a total of $20,000 ($5,000 down and financing the remaining $15,000 with 10%/year interest payments and a final balloon payment of $15,000 at the end of year 4. The property would be 5-year MACRS property and there would be no 179 or bonus depreciation taken). b. The second option being considered is to lease the asset on January 1, 2021 for $7500/year for 5 years. For all years, the tax rate that they will pay will be 25% and she uses a discount rate of 7%. Which option is better and fill in the table. YEAR MACRS Depreciation Tax Savings (25%) 0 1 2 3 4 5 TOTAL YEAR 0 1 2 3 4 5 Initial Payment Interest Cost Recovery Deductions Interest Deductions Net Cash Flow Discount Factor NPV TOTAL NPV
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