Equipment can be leased at $18000 per year (first payment at beginning of year) for...
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Equipment can be leased at $18000 per year (first payment at beginning of year) for eight years or purchased at a cost of $100000. A bank has indicated that it would be willing to make the loan of $100000 at a cost of 9%. There is no salvage value. Now assume a marginal tax rate of 21%. Should the firm buy or lease? The PV of the depreciation expense is 70% of the original investment. Assume a 7.11% discount rate after tax. O none of them O Buy: PV of Lease option lower than Buy option O Buy: PV of Buy option lower than Lease option Lease; PV of Buy option lower than Lease option O Lease; PV of Lease option lower than Buy option Previous Next
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