The salvage value of a leased asset affects the cost of the lease through the tax shields associated with owning.

Question

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The salvage value of a leased asset affects the cost of the lease because it impacts the tax shields associated with owning the asset. A higher salvage value means lower depreciation expense, which reduces taxable income and thus reduces taxes. This tax shield can lower the cost of a lease for the lessee.

The Salvage Value of a Leased Asset Affects the Cost