Stone Wall Builders is weighing a lease versus a purchase of some new machinery. The purchase price is $268,000. The equipment has a 4-year life and then is expected to have a resale value of $99,000. Stone Wall Builders uses straight-line depreciation and can borrow money at 7.5 percent. The equipment can be leased for $56,500 a year for 4 years. Stone Wall Builders does not expect to owe any taxes for the next 6 years because of accumulated net operating losses. What is the net advantage to leasing?

Question

Quizplus · Accepted Answer

The net advantage to leasing is $4,632. This is calculated by taking the present value of the lease payments and subtracting the present value of the purchase price and resale value. The present value of the lease payments is $200,232. The present value of the purchase price and resale value is $195,600. The difference between these two values is $4,632.

Stone Wall Builders Is Weighing a Lease Versus a Purchase