Rosie's Kitchen needs some new commercial ovens. The purchase price is $56,000. The ovens will be worthless after 4 years. The ovens belong in a 30 percent CCA class and can be leased for $16,500 a year. The firm can borrow money at 7.5 percent and has a 34 percent tax rate. What is the net advantage to leasing?

Question

Quizplus · Accepted Answer

The net advantage to leasing is calculated by comparing the after-tax cost of leasing to the after-tax cost of owning, including tax shields from depreciation. The calculation shows a net advantage of -$532, indicating that leasing is slightly more expensive than owning.

Rosie's Kitchen Needs Some New Commercial Ovens