Question
Your company wants to purchase a new server for its computer network. The server costs $7500. It will be completely obsolete in three years. Your
Your company wants to purchase a new server for its computer network. The server costs $7500. It will be completely obsolete in three years. Your options are to lease the server, or to buy the server with the money financed from a loan which will be amortized over three years with end-of-year payments. If you lease, the payments will be $2700 per year, payable at the end of each of the next three years. If you buy the server, you can depreciate it straight-line to zero over three years. The tax rate is 34 percent. What is the closest after-tax interest rate of the loan that makes the company indifferent between leasing and buying the server?
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