Question
Scott & Jacobs is considering the purchase of a new machine for $10,700 that has a life of 6 years and would be depreciated on
Scott & Jacobs is considering the purchase of a new machine for $10,700 that has a life of 6 years and would be depreciated on a straight-line basis to a zero salvage value over its life. The machine is expected to save the firm $6,800 per year in operating costs. There is no actual salvage value. Alternatively, the firm can lease the machine for $2,200 annually for 6 years, with the first payment due at the end of the first year. The firms tax rate is 21 percent and its cost of debt is 7 percent. What is the net advantage to leasing for the lessee?
$237
$157
$21,243
$631
$1,773
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