Marschall's is trying to decide whether to lease or buy some new equipment. The equipment costs $62,000 and has a 4-year life. The equipment will be worthless after the 4 years and will have to be replaced. The company has a tax rate of 35 percent, a cost of borrowed funds of 9 percent. The equipment can be leased for $16,500 a year. What is the amount of the after-tax lease payment?
A) $5,775
B) $8,350
C) $10,725
D) $11,690
E) $11,700

Question

Quizplus · Accepted Answer

The after-tax lease payment is calculated by multiplying the lease payment by (1 - tax rate). So, $16,500 * (1 - 0.35) = $10,725.

Marschall's Is Trying to Decide Whether to Lease or Buy