Charleston Marina is considering either leasing or buying some new equipment it needs for repairing boats.The lease payments would be $7,200 a year for 3 years.The purchase price is $20,800.The equipment has a 3-year life and then is expected to have a resale value of $4,700.The firm uses straight-line depreciation,borrows money at 8.5 percent,and has a 34 percent tax rate.What is the net advantage to leasing?

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Quizplus · Accepted Answer

Aftertax lease payment = $7,200 (1 - 0.34) = $4,752Lost depreciation tax shield = ($20,800/3) (0.34) = $2,357.33Aftertax salvage value = $4,700 (1 - 0.34) = $3,102Discount rate = 0.085 (1 - 0.34) = 0.0561

Charleston Marina Is Considering Either Leasing or Buying Some New