Your firm is considering leasing a new computer. The lease lasts for 9 years. The lease calls for 10 payments of $1,000 per year with the first payment occurring immediately. The computer would cost $8,100 to buy and would be depreciated using the straight-line method to zero salvage over 9 years. The firm can borrow at a rate of 8%. The corporate tax rate is
30%) What is the NPV of the lease?

Question

Quizplus · Accepted Answer

The NPV of the lease is calculated by comparing the cost of leasing versus buying. The lease payments are $1,000 per year for 10 years, with the first payment occurring immediately. The cost of buying is $8,100, depreciated over 9 years. The tax shield from depreciation and the cost of borrowing at 8% are considered. The NPV of the lease is $686.00.

Your Firm Is Considering Leasing a New Computer