1 your firm is considering leasing a new computer the lease, Ask an Expert

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1. Your firm is considering leasing a new computer. The lease lasts for 8 years. The lease calls for 8 payments of $8,000 per year with the first payment occurring immediately. The computer would cost $50,000 to buy and would be straight-line depreciated to a zero salvage value over 8 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 5%. The corporate tax rate is 34%. What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in year 0?

$50,000

$44,720

$42,000

-$37,650

-$8,000

2. Your firm is considering leasing a new computer. The lease lasts for 8 years. The lease calls for 8 payments of $8,000 per year with the first payment occurring immediately. The computer would cost $50,000 to buy and would be straight-line depreciated to a zero over 8 years. The actual pre-tax salvage value is $3,000. The firm can borrow at a rate of 5%. The corporate tax rate is 34%. What would the NPV of the lease relative to the purchase be?

-$2,780.42

-$4,064.08

-$3,927.15

$2,318.71

$3,061.26

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92856768

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