Aldo, Inc. is trying to decide whether to lease or buy some new equipment. The equipment costs $59,000, has a 3-year life, and belongs in a 25 percent CCA class. The equipment will be worthless
After the 3 years and will have to be replaced. The company has a tax rate of 34 percent and a cost
Of borrowed funds of 10 percent. The equipment can be leased for $22,000 a year. What is the
Amount of the after-tax lease payment?

Question

Quizplus · Accepted Answer

The after-tax lease payment is calculated by reducing the lease payment by the tax shield. The tax shield is the lease payment multiplied by the tax rate: $22,000 * 34% = $7,480. Therefore, the after-tax lease payment is $22,000 - $7,480 = $14,520.

Aldo, Inc Is Trying to Decide Whether to Lease or Buy