Rosie's Kitchen needs some new commercial ovens. The purchase price is $56,000. The ovens will be worthless after 4 years. The ovens belong in a 30 percent CCA class and can be leased for
$16,500 a year. The ﬁrm can borrow money at 7.5 percent and has a 34 percent tax rate. What is the
Net advantage to leasing?

Question

Quizplus · Accepted Answer

The Net Advantage to Leasing (NAL) is calculated by comparing the cost of leasing to the cost of owning. The calculation involves considering the tax shield benefits from depreciation, the cost of borrowing, and the tax implications of leasing. After performing these calculations, the NAL is found to be -$532, indicating that leasing is slightly more expensive than purchasing.

Rosie's Kitchen Needs Some New Commercial Ovens