Biggie Corporation can buy an auto for $29,500 (including taxes, license, and title fees) or it can lease the same car for $390 per month with $2,500 up front for tax, license, and fees. The corporation only keeps its cars for two years and it expects to be able to sell the car for $19,000 at the end of two years if it purchases the car. The corporation is in the 34 percent tax bracket, uses a 6 percent discount rate for evaluation, and assume that the lease inclusion amounts for years 1 and 2 are 25 and 55, respectively. Should Biggie Corporation buy or lease the auto in 2017 (assume lease payments are all made at the end of the year).

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The Answer of Biggie Corporation can buy an auto for $29,500 (including taxes, license, and title fees) or it can lease the same car for $390 per month with $2,500 up front for tax, license, and fees. The corporation only keeps its cars for two years and it expects to be able to sell the car for $19,000 at the end of two years if it purchases the car. The corporation is in the 34 percent tax bracket, uses a 6 percent discount rate for evaluation, and assume that the lease inclusion amounts for years 1 and 2 are 25 and 55, respectively. Should Biggie Corporation buy or lease the auto in 2017 (assume lease payments are all made at the end of the year).

Biggie Corporation Can Buy an Auto for $29,500 (Including Taxes