CT Motors borrows money at 8.35 percent, uses straight-line depreciation, and has a tax rate of 21 percent. The firm's break-even aftertax annual lease payment on a machine is $15,306. What amount would CT Motors pay to the lessor annually to break-even?

Question

CT Motors borrows money at 8.35 percent, uses straight-line depreciation, and has a tax rate of 21 percent. The firm's break-even aftertax annual lease payment on a machine is $15,306. What amount would CT Motors pay to the lessor annually to break-even?

Quizplus · Accepted Answer

The break-even aftertax lease payment is the amount CT Motors would need to pay after accounting for taxes. To find the pre-tax amount they would need to pay to break even, you divide the aftertax amount by (1 - tax rate). So, the calculation is $15,306 / (1 - 0.21) = $19,375.

CT Motors Borrows Money at 8