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Problem:

Smith Corp is considering the lease of an automated production line costing $500,000 from Ace Leasing. The period of the lease will be 4 years. The welder will be depreciated under MACRS rules for a 3-year class asset. Smith's marginal tax is 30%. Annual lease payments will be $190,000. Estimated salvage value is zero.

Required:

Question: If Ace's after-tax cost of borrowing is 16%, compute the after tax cost of leasing.

Note: Provide support for rationale.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91169483

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