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Nova Corp. is considering the purchase of a $300,000 machine that has a 5 year life with no salvage value. The asset will generate after-tax cash flows of $98,000 per year and the company has a marginal tax rate of 40%. The company has a required rate of return of 12%. The machine has a CCA rate of 30%. Alternatively, the company can also lease the machine with lease payments of $90,000 per year (beginning of the year) for 5 years and the before tax cost of borrowing in the lease is 9%. A. If the company buys the machine, what is the NPV? B. If the company leases the machine, what is the NAL? C. Should the company buy or lease?
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