CTS is analyzing the acquisition of $284,000 equipment that would be depreciated using the MACRS rates of 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percent over Years 1 to 4, respectively. After that time, the equipment would be worthless. The equipment can be leased for $82,100 a year for four years. The firm can borrow at 6 percent and has a tax rate of 23 percent. What is the net advantage to leasing?

Question

Quizplus · Accepted Answer

The net advantage to leasing is -$1,982. This is because the present value of the lease payments is $284,000, while the present value of the depreciation tax savings is $286,982.

CTS Is Analyzing the Acquisition of $284,000 Equipment That Would