Dig Co has a big contract to dig holes for a government installation. It is a four year contract. They will earn $250,000 per year. They have two choices for acquiring the required backhoe and bulldozer. They can lease both of them for $86060 per year or they can buy both for $550000. At the end of 4 years they can sell them for $200,000. Dig Co has a state corporate tax of $8.2%, and they will pay the 21% federal tax. Both machines are 3-year property and will use MACRS depreciation with half year convention. Dig Co. has an after tax MARR of 10%. Use ATPW analysis to choose the best alternative.
a) What is their total tax rate? %
b) ATPW if they lease the equipment? $
c) ATPW if they buy the equipment? $