You are the manager of a sales division, and are considering leasing a fleet of cars for your staff.You can buy the cars for $300,000 or you can lease them for 8 years at $60,000 per year with payments due at end of each year.The company has a tax rate of 40.0% and a CCA rate of 10.0% on vehicles.If the company buys the cars and finances the purchase with a loan, they will pay 7.0% in interest.Assume that after the term of the lease is over, the salvage value of the cars will be zero.What is the NPV of the lease, based on accelerated investment incentive for CCA in the first year?
A)$213,790
B)-$26,600
C)-$23,194
D)-$240,390

Question

Quizplus · Accepted Answer

The NPV of the lease is calculated by comparing the after-tax cost of leasing versus buying. The lease payments are tax-deductible, and the CCA provides tax shields when buying. The accelerated investment incentive allows for a higher CCA claim in the first year, affecting the NPV calculation.

You Are the Manager of a Sales Division, and Are