Your company is considering the purchase of a fleet of cars for $195,000. It can borrow at 8.5%. The cars will be used for four years. At the end of four years they will be worthless. You call a leasing agent and find that the cars can be leased for $55,000 per year. The corporate tax rate is 34% and the cars belong in CCA class 10 (a 30% class), what is the net advantage to leasing?

Question

Quizplus · Accepted Answer

The net advantage to leasing is $6,594. This is calculated by taking the present value of the lease payments and subtracting the present value of the purchase price. The present value of the lease payments is $195,000 * 0.085 * (1 - (1 + 0.085)^-4) / 0.085 = $55,000 * 3.215 = $176,825. The present value of the purchase price is $195,000 * (1 - (1 + 0.085)^-4) / 0.085 = $170,231. The net advantage to leasing is $176,825 - $170,231 = $6,594.

Your Company Is Considering the Purchase of a Fleet of Cars