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 $105,000 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?
A)-$4,587
B)-$7,471
C)-$18,640
D)-$21,651
E)-$30,277

Question

Quizplus · Accepted Answer

NAL = $329,000 - ($105,000) (PVIFA_{9.5%, 4}) = -$7,470.52

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