The cost of a seven-year lease is $150,000 per year and matches the exact cost of a loan to finance the purchase of equipment. All else equal, and given a usable life of seven years with no salvage value, what is the advantage of a lease given a discount rate of 7 percent and no taxes?

Question

Quizplus · Accepted Answer

The advantage of a lease in this scenario is $0 because the cost of leasing is exactly the same as the cost of borrowing to purchase the equipment, when considering the present value of payments over the seven years at a 7 percent discount rate, with no taxes or salvage value involved.

The Cost of a Seven-Year Lease Is $150,000 Per Year