Company C has a 21 percent marginal tax rate and uses an 8 percent discount rate to compute NPV. The company must decide whether to lease or purchase equipment to use for years 0 through 7. It could lease the equipment for $21,000 annual rent, or it could purchase the equipment for $100,000. The seller would require no money down and would allow Company C to defer payment until year 4 at 11.5 percent simple interest ($11,500 interest payable in years 1, 2, 3, and 4). The equipment would be seven-year MACRS recovery property with no residual value. Use Appendix A and Appendix B.

Calculate the after-tax cost if Company C buys the equipment. Use Table 7-2.

Recovery Period 3-Year 5-Year 7-Year 10-Year 15-Year 20-Year Year Depreciation Rate 1 33.33% 20.00% 14.29% 10.00% 5.00% 3.750% 7.219 2 44.45 32.00 24.49 17.49 12.49 8.93 8.92 8.93 4.46 18.00 9.50 14.40 8.55 11.52 9.22 7.37 6.55 5.90 4.888 6.55 6.56 6.55 3.28 3 14.81 19.20 11.52 11.52 5.76 6.677 770 6.93 6.23 5.285 4 7.41 5.713 6 5.90 4.522 5.91 5.90 5.91 5.90 5.91 5.90 5.91 2.95 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 2.231 9 12 13 14 15 16 17 18 19 20 21