Your firm is considering lease financing for a computer that is expected to have a five-year life

Question:

Your firm is considering lease financing for a computer that is expected to have a five-year life and no (it is a strict financial lease). You have the following facts:
• Your firm's tax rate is 30%. There is no investment tax credit.
• If purchased, the project would require a capital outlay of $100,000.
• The project will be depreciated using the straight-line method.
• Debt of equivalent risk costs 10% before taxes.
• The annual lease fee is $32,000 paid at the beginning of each year for five years.
• The optimal for the project is 50% to total assets.
Should you use lease financing or not?
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a...