Question
metro is thinking of leasing a new material. The lease lasts for eight years. The lease calls for eight payments of 262,000 per year with
metro is thinking of leasing a new material. The lease lasts for eight years. The lease calls for eight payments of 262,000 per year with the first payment taking place instantly. The material would cost 1,800,000 to buy and would be straight-line depreciated to a zero salvage value over eight years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 5 percent. The corporate tax rate is 25 percent. What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in year six?
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