Your firm needs to either buy or lease $230,000 worth of vehicles. These vehicles have a life of 4 years after which time they are worthless. The vehicles belong in CCA class 10 (a 30% class) and can be leased at a cost of $68,000 a year for the 4 years. The corporate tax rate is 34% and the cost of debt is 10%.

What is the amount of the after-tax lease payment?

Question

What is the amount of the after-tax lease payment?

Quizplus · Accepted Answer

The after-tax lease payment is calculated as the lease payment minus the tax shield on the lease payment. The tax shield is the lease payment times the corporate tax rate. So, the after-tax lease payment is $68,000 - ($68,000 * 34%) = $68,000 - $23,120 = $44,880.

Your Firm Needs to Either Buy or Lease $230,000 Worth