Question
ABC Brickworks proposes to lease a $75,000 forklift. Five annual lease payments of $15,000 are due in advance. ABC's tax rate is 35%. If it
ABC Brickworks proposes to lease a $75,000 forklift. Five annual lease payments of $15,000 are due in advance. ABC's tax rate is 35%. If it purchases the forklift, the forklift will be depreciated using straight line method. ABC however can sell the forklift for $5,000 scrap value at the end of fifth year.
The interest rate is 9%.
- a)What is the net cost of buying?
- b)What is the net cost of leasing?
- c)What is the net advantage of leasing?
- d)What should be competitive lease amount so that ABC will be indifference between lease vs. buy?
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Financial Markets and Institutions
Authors: Jeff Madura
11th Edition
1133947875, 9781305143005, 1305143000, 978-1133947875
