Your firm is considering leasing a magic box.The lease lasts for three years.The lease calls for three payments of $1,350 per year with the first payment occurring at lease inception.The magic box would cost $3,600 to buy and would be straight-line depreciated to zero salvage value over three years.The firm can borrow at 6 percent, and the marginal corporate tax rate is 30 percent.What is the NPV of the lease?

Question

Quizplus · Accepted Answer

The NPV of the lease is -$117.52. This is because the present value of the lease payments is $3,645.29, while the present value of the purchase price is $3,762.81. The difference between these two values is the NPV of the lease.

Your Firm Is Considering Leasing a Magic Box