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7. OPERATING LEASE: ABC, Inc. rents office furniture to small companies. Consider a piece of office equipment that lasts for 3 years and costs $6,000.
7. OPERATING LEASE: ABC, Inc. rents office furniture to small companies. Consider a piece of office equipment that lasts for 3 years and costs $6,000. The equipment can be depreciated (using the straight-line method) over the next three years (beginning in one year from today) to a salvage value of zero. The cost of capital is 8% and the tax rate is 35%. The inflation rate is zero. ABC's pretax administrative costs are as follows: Year 0 $800 Year 1 $800 Year 2 $800 Year 3 $800 Administrative Costs a) Calculate the present value of the costs (to ABC) of owning and operating the piece of office equipment. Please show all of your cash flows in a table format. b) Compute the break-even (pretax) operating lease rate for the equipment. The operating lease will last for three (calendar) years and requires four (annual) payments with the first payment due today
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