Presto's Pizza is considering either leasing or buying a new oven. The lease payments would be $7,200 a year for 3 years. The purchase price is $20,000. The equipment has a 3-year life and then
Is expected to have a resale value of $2,000. Presto's Pizza uses straight-line depreciation, borrows
Money at 9.5 percent, and has a 34 percent tax rate. What is the net advantage to leasing?

Question

Quizplus · Accepted Answer

The net advantage to leasing is $232. 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 $19,047.62. The present value of the purchase price is $18,234.29. The present value of the resale value is $1,833.33. Therefore, the net advantage to leasing is $232.

Presto's Pizza Is Considering Either Leasing or Buying a New