'This lable illustrates the calcilialion of nel present value (NPV) for the two methods of equipment financing: the loan financing altemative (also called buy·and-borrow) and the lease finanCing. Because these cash flows are nel outflows or expenses. the alternative with the lower net present value will be more allractive 10 the customer.
'See "Loan Amortization Table."
3Modified Accelerated Cost Recovery System (MACRS).
"The residual cash flow equals the sale proceeds less the tax expense on the gain or loss from the sale. The lax expense equals the
lax rale limes the differences between sale proceeds and nel book value 01 the asset (see separate calculation below).
'Loan cash flows are the sum 01 aller-lax Inlerest payments, pnnclpal paymenlS, depreciation tax shield (shown as a negative value
because II reduces expenses), and value captured trom Ihe sale 01 the reSidual asset (also negative). Loan.financlng cash flows
occu r In arrears
"Lease cash flows equal the assumed leasB payment less the lax shield. Lease paymenls are made In advance.