Jamestown Industries Is Contemplating the Acquisition of Some New Equipment

Jamestown Industries is contemplating the acquisition of some new equipment. The purchase price is $40,000. The equipment has a 4-year life after which time it will be worthless. The equipment
Belongs in a 35 percent CCA class. The equipment can be leased for $11,000 a year. The firm can
Borrow money at 7 percent and has a 35 percent tax rate. What is the incremental annual cash flow
For year 2 if the company decides to lease the equipment rather than purchase it?

A) -$11,193
B) -$7,904
C) -$4,778
D) -$2,916
E) -$928