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Sunshine Ltd is considering purchasing or leasing new equipment. If it purchases the equipment it will cost $500,000 and if it leases the equipment it
Sunshine Ltd is considering purchasing or leasing new equipment. If it purchases the equipment it will cost $500,000 and if it leases the equipment it will be required to pay six rentals of $115,000 each. The equipment can be depreciated over three years on a straight-line basis for tax purposes. The residual value is expected to be zero and the tax rate is 30%. What is the incremental cash flow in Year 3 for leasing the equipment rather than buying it for Year 3? Assume that rental payments are paid at the beginning of each period.
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