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Morrison Industrial Tool can either lease or buy some equipment. The lease payments will be $9,000 a year. The purchase price is $31,000. The equipment
| Morrison Industrial Tool can either lease or buy some equipment. The lease payments will be $9,000 a year. | |||||||||||
| The purchase price is $31,000. The equipment has a 3-year life after which time it is expected to have a resale value of $4,000. | |||||||||||
| The firm uses straight-line depreciation, borrows money at 10 percent and has a 33 percent tax rate. | |||||||||||
| What is the incremental cash flow for year 1 if the company decides to lease the equipment rather than purchase it? | |||||||||||
| ($9,440) | |||||||||||
| ($1,096) | |||||||||||
| $5,992 | |||||||||||
| ($16,152) | |||||||||||
($26,410)
Answer computed:
| Year 1=(-9000*(1-.33))+((-31000/3)*.33) | |
| -9440 | |
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Advanced Accounting
Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik
10th edition
0-07-794127-6, 978-0-07-79412, 978-0077431808
