Your firm is considering either leasing or buying some new equipment. The lease payments will be $25,600 a year. The purchase price is $72,800. The equipment belongs in a 35 percent CCA class and has a 3-year life after which time it is expected to have a resale value of $9,500. Your firm borrows money at 11 percent, and has a 34 percent tax rate. What is the net advantage to leasing?
A) -$1,407
B) -$129
C) $129
D) $1,407
E) $5,745

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 buying, considering tax shields from depreciation and interest. The positive value indicates a net advantage to leasing.

Your Firm Is Considering Either Leasing or Buying Some New