Joe Genius of ABC Corporation is considering whether to engage in a financial lease or to purchase a large capital asset.If Joe purchases the asset,he will use debt financing.Which of the following accurately describes the similarities in the tax treatment of leasing and purchasing with debt?

Question

Quizplus · Accepted Answer

Both leasing and purchasing with debt allow for deductions which reduce taxable income. This is because lease payments and interest on debt financing are considered tax-deductible expenses. However, the after-tax net present value and timing of payments may differ between the two alternatives. Capital cost allowance may also differ depending on the asset and the method of acquisition. Therefore, the decision between leasing and purchasing with debt should consider all relevant factors, including tax implications, cash flow, and overall financial objectives.

Joe Genius of ABC Corporation Is Considering Whether to Engage