(Net advantage to leasing) Lake Trolley Company is considering whether to lease or buy a new trolley that costs $25,000. The trolley can be depreciated straight line over an eight- year period to an estimated residual value of $5,000. Lake Trolley's cost of eight-year secured debt is 12%. Its required return for the project is 16% after tax and 20% pretax. National Trolley Leasing Corporation has offered to lease the trolley to Lake Trolley in return for annual payments of $5,000 payable at the end of each year.

a) Calculate the net advantage to leasing, assuming Lake Trolley's tax rate is 40%. Should Lake Trolley lease, or borrow and buy?

a.-$2,850.96; don't lease

b.-$1,525.13; don't lease

c.-$1,325.83; don't lease

d.-$1162.84; don't lease

e.-$1,001.0; don't lease

f.-$597.27; don't lease

g.-$256.30; don't lease

h.-$226.30; don't lease

i.-$45.52; don't lease

j.$45.52; lease

k.$226.30; lease

l.$256.30; lease

m.$597.27; lease

n.$1,001.04; lease

o.$1,162.84; lease

p.$1,325.83; lease

q.$1,525.13; lease

r.$2,850.96; lease

b) Calculate the net advantage to leasing, assuming the residual value at the end of eight years is $500, but the trolley is depreciated to $5,000. Lake Trolley's tax rate is zero. Should Lake Trolley lease, or borrow and buy?

a.-$2,850.96; don't lease

b.-$1,525.13; don't lease

c.-$1,325.83; don't lease

d.-$1162.84; don't lease

e.-$1,001.04; don't lease

f.-$597.27; don't lease

g.-$256.30; don't lease

h.-$226.30; don't lease

i.-$45.52; don't lease

j.$45.52; lease

k.$226.30; lease

l.$256.30; lease

m.$597.27; lease

n.$1,001.04; lease

o.$1,162.84; lease

p.$1,325.83; lease

q.$1,525.13; lease

r.$2,850.96; lease