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ABC, Inc. needs some new equipment. The equipment would cost $100,000 if purchased and would be depreciated straight-line over 5 years. No salvage is expected.
ABC, Inc. needs some new equipment. The equipment would cost $100,000 if purchased and would be depreciated straight-line over 5 years. No salvage is expected. Alternatively, the company can lease the equipment for $26,310 per year from XYZ, Inc. Suppose that ABCs marginal tax rate is zero but XYZs is 40%. The before-tax cost of debt for both firms is 10%. What are the net advantages to leasing for ABC, Inc. and XYZ, Inc. respectively?
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