Question
The Kay Pal Corporation is debating whether to acquire an asset through an operating leane arrangement or to borrow funds and purchase the assetThe purchase
The Kay Pal Corporation is debating whether to acquire an asset through an operating leane arrangement or to borrow funds and purchase the assetThe purchase price of the asset, 110,000, can be financed with a four year, 10% bank loan. If purchased, the asset will be placed in of 30% with an expected salvage of 9,000, at the end of its four year lifeAnnual before-tax costs of service and repair are estimated at 4,000 under the purchase optionAlternatively, the firm can obtain the use of the asset with an operating lease of four years. The lease payments would be $29,000 per year. The firm's tax rate % and cost of capital 16Lease payments are to be paid the beginning of each year Which alternative should be selected based on minimizing the present value of after-tax costs? Show full details for all steps to support your conclusions
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