Your firm is considering either leasing or buying some new equipment that belongs in a 20 percent CCA class. The lease payments will be $5,600 a year. The purchase price is $15,900. The equipment has a 3-year life after which time it is expected to have a resale value of $400. Your firm borrows money at 7.5 percent, and has a 35 percent tax rate. What is the net advantage to leasing?

Question

Quizplus · Accepted Answer

The net advantage to leasing (NAL) calculation involves comparing the cost of leasing to the cost of buying, taking into account the tax benefits and the cost of financing. In this case, the correct answer involves calculating the present value of lease payments, the tax shield from depreciation, and the cost of borrowing to buy the equipment, then comparing these to determine the net advantage to leasing. The calculation is complex and requires detailed financial analysis, including the present value of lease payments, tax savings from depreciation, and the cost of capital. The correct answer (C) $860, suggests that after performing these calculations, leasing offers a net financial benefit of $860 over purchasing the equipment outright, considering the given tax rate, interest rate, and equipment's expected life and salvage value.

Your Firm Is Considering Either Leasing or Buying Some New