Baxter Contractors is evaluating the lease versus the purchase of a $329,000 machine. The machine will be depreciated using MACRS over a 4-year period, after which the machine will be worthless. MACRS allows for 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percent depreciation over years 1 to 4, respectively. The machine could be leased for $104,100 a year for 4 years. The firm can borrow money at 9.5 percent and has a 35 percent tax rate. The firm does not expect to pay any taxes for the next 5 years. What is the net advantage to leasing?

Question

Quizplus · Accepted Answer

NAL = $329,000 - ($104,100) (PVIFA_{9.5%, 4}) = -$4,587

Baxter Contractors Is Evaluating the Lease Versus the Purchase of a $329,000