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Your firm is interested in acquiring an asset for a project which will last six years. The asset costs $210,000 to buy today. If you
Your firm is interested in acquiring an asset for a project which will last six years. The asset costs $210,000 to buy today. If you buy the asset, you can depreciate it to zero with straight-line method. Alternatively, you can lease this asset for $44,500 per year (paid at the end of each year). The corporate tax rate is 20% and after-tax cost of debt is 6.0%. Under these circumstances, which option do you choose and how much do you save? (Note: All answers are rounded) We choose leasing and we save $522 We are indifferent between buying and leasing We choose buying and we save $1,445 We choose buying and we save $522 We choose leasing and we save $1,445
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