1. Suppose for buying the new machine in question 1, you can lease (operating lease) the machine for 8 years and annual operating lease payments (LP) of $150,000 (from year 1 to year 8). Considering income tax of 40% and minimum ROR of 10%, calculate the ATCF and NPV of leasing the machine. Compare your result with the previous question.
2. New machine: If you decide to replace the old machine with a new one, it requires capital cost of $1,000,000 in year zero (and zero salvage value for the old machine). Capital cost is depreciable from year 1 to year 8 (over eight years) based on MACRS 7-year life depreciation with the half year convention (table A-1 at IRS). The new machine can produce income of $450,000 and operating cost of $150,000 per year for 8 years (from year 1 to year 8) and it will have salvage value of 200,000 at the end (with zero book value) , you can lease the machine for 8 years using a capital lease with annual lease payments of $170,000 (from year 1 to year 8) and lease interest rate of 6%. Depreciation, revenue and operating cost will be similar to question 1. Considering income tax of 40% and minimum ROR of 10%, calculate the ATCF and NPV of leasing the machine. Please calculate and include the lease principal and interest calculations.