If a firm does not expect to owe taxes for a few years and needs some equipment, the firm generally should:
A) lease the equipment and retain the tax benefits.
B) lease the equipment with the lessor retaining the tax ownership of the asset.
C) borrow the money to buy the asset and then depreciate it using MACRS depreciation.
D) buy the equipment with cash and depreciate it using bonus depreciation.
E) buy the equipment and depreciate it straight-line over the life of the asset.

Question

Quizplus · Accepted Answer

If a firm does not expect to owe taxes for a few years, leasing the equipment with the lessor retaining the tax ownership of the asset is generally more advantageous. This way, the lessor can utilize the tax benefits immediately, such as depreciation, and often pass these savings to the lessee in the form of lower lease payments. Since the firm won't benefit from tax deductions due to depreciation (as it doesn't expect to owe taxes), retaining tax ownership doesn't provide an advantage to them.

If a Firm Does Not Expect to Owe Taxes for a Few