Question
Stanley Corporation is considering leasing a new equipment. The lease lasts for 5 years. The lease calls for 5 payments of $41,600 per year with
Stanley Corporation is considering leasing a new equipment. The lease lasts for 5 years. The lease calls for 5 payments of $41,600 per year with the first payment occurring immediately. The equipment would cost $180,000 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 5%. The corporate tax rate is 25%. What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in year 2? (Hint: For this and following questions, review problem 6 in the practice problems of Chapter 21)
$30,750 | ||
-$40,200 | ||
-$43,600 | ||
$28,350 | ||
-$37,500 |
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