A machine costs $2.2 million and would be depreciated straight-line to zero over four years after which it would be worthless. This machine can be leased for $645,000 per year for four years. Assume a tax rate of 21 percent and a pretax borrowing rate of 7 percent. What is the net advantage to leasing from the lessor's viewpoint?

Question

Quizplus · Accepted Answer

The net advantage to leasing (NAL) is calculated by comparing the after-tax cash flows of leasing versus buying. The lessor's viewpoint considers the after-tax lease payments and the depreciation tax shield. The correct calculation results in a net advantage to leasing of −$10,621.

A Machine Costs $2