Morris-Meyer Mining Company must install $1.4 million of newmachinery in its Nevada mine. It can obtain a bank loan for 100% ofthe required amount. Alternatively, a Nevada investment bankingfrom that represents a group of investors believes that it canarrange for a lease financing plan. Assume that the following factsapply: The equipment falls in the MACRS 3-year class. Theapplicable MACRS rates are 33%, 45%, 15%, and 7%. Estimatedmaintenance expenses are $65,000 per year. Morris-Meyer'sfederal-plus-state tax rate is 45%. If the money is borrowed, thebank loan will be at a rate of 14%, amortized in 4 equalinstallments to be paid at the end of each year. The tentativelease terms call for end-of-year payments of $300,000 per year for4 year. Under the proposed lease terms, the lessee must pay forinsurance, property taxes, and maintenance. The equipment has anestimated salvage value of $300,000, which is the expected marketvalue after 4 years, at which time Morris-Meyer plans to replacethe equipment regardless of whether the firm leases or purchasesit. The best estimate for the salvage value is $300,000, but it maybe much higher or lower under certain circumstances. To assistmanagement in marking the proper lease-versus-buy decision, you areasked to answer the following questions. Assuming that the leasecan be arranged, should Morris-Meyer lease or borrow and buy theequipment? Explain. Round your answer to the whole number. Netadvantage to leasing (NAL) is $ . (Input the minus sign if the costof leasing the machinery is more than the cost of owning it.)
