Calculate the NPV of an investment with the following conditions and then conclude which one is better.
Purchase the Asset: purchasing the asset requires capital cost of 400,000 (at time 0) and can be depreciated based on MACRS 7 year life depreciation with the half year convention over eight years ( 0 to 7 ). And the salvage value will be $100,000 at the end of the 7th year.
Lease (operating lease): The asset can be leased for 7 years at annual operating lease payments (LP) of 75,000 ( year 1 to 7 )
The asset would yield the annual revenue of 150,000 and operating cost of 40,000 for 7 years
Considering income tax of 40% and minimum ROR of 6% calculate the ATCF and NPV for both alternative and decide which is better.