Merkon Inc.must choose between purchasing a new asset for $86,000 or leasing the asset for four years for $27,500 annual rent.The purchased asset would be 3-year recovery property that Merkon could use for four years,after which the asset would have no salvage value.Assuming a 21% tax rate,an 8% discount rate,and no Section 179 deduction or bonus depreciation,which of the following statements is true? Use Appendix A,Table 7-2.(Round discount factor(s)to 3 decimal places.)
A)Merkon's after-tax cost of the purchase is $8,517 less than the after-tax cost of the lease.
B)Merkon's after-tax cost of the lease is $1,374 less than the after-tax cost of the purchase.
C)Merkon's after-tax cost of the purchase is $8,517 more than the after-tax cost of the lease.
D)None of the choices are correct.

Question

Quizplus · Accepted Answer

The after-tax cost of the purchase is $8,517 less than the after-tax cost of the lease.