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Hudson Bay Corporation is considering leasing a new equipment. The lease lasts for 5 years. The lease calls for 5 payments of $42,000 per year
- Hudson Bay Corporation is considering leasing a new equipment. The lease lasts for 5 years. The lease calls for 5 payments of $42,000 per year with the first payment occurring immediately. The equipment would cost $195,000 to buy and would be straight-line depreciated to a zero salvage value over 5 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 6%. The corporate tax rate is 25%.What is the NPV of the lease relative to the purchase if the asset had a pretax salvage value of $7,000 (ignoring any possible risk differences)?
a. -$16,474.13
b. -$13,368.21
c. -$10,508.25
d. $3,477.80
e. $8,427.96
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