Determine the more economic means of acquiring a copier in your business.

You may either:

(a) purchase the copier for $5,000 with a probable resale value of $1,000 at the end of 5 years,

OR

(b) rent the copier for an annual fee of $900 per year for 5 years with an initial deposit of $500 refundable upon returning the copier in good condition.

• If you own the copier, you will depreciate it by using the MACRS method (class life of 5 years).
• All rental fees are deductible for income tax purposes.
• As the owner or lessee, you will pay all expenses associated with the operation of the copier.
• A deposit does not affect taxes when paid out or received back.

Compare these alternatives by using the equivalent uniform annual cost method. The after-tax MARR is 10% per year, and the effective income tax rate is 40%.