A firm can either lease or buy some new equipment.The lease payments would be $18,500 a year for 4 years.The purchase price is $72,900.The equipment has a 4-year life after which it is expected to have a resale value of $3,600.The firm uses straight-line depreciation over the life of the asset,borrows money at 11 percent,and has a 35 percent tax rate.The company does not expect to owe any taxes for at least 4 years because it has accumulated net operating losses.What is the incremental cash flow for year 3 if the company decides to lease rather than purchase the equipment?

Question

Quizplus · Accepted Answer

CF₃ = -1 ($18,500) = -$18,500

A Firm Can Either Lease or Buy Some New Equipment