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Green Valley Farms is considering either leasing or buying some new farm equipment. The lessor will...

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Finance

Green Valley Farms is considering either leasing or buying somenew farm equipment. The lessor will charge $23,000 a year lease.The purchase price is $63,000. The equipment has a 3-year lifeafter which time it will be worthless. Green Valley Farms usesstraight-line depreciation, has a 32 percent tax rate, borrowsmoney at 9 percent, and has sufficient tax loss carryovers tooffset any potential taxable income the firm might have over thenext five years. What is the net advantage to leasing?

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4.3 Ratings (700 Votes)
Tax benefit can be taken for lease payment and depreciation As tax loss carryovers are available Cost of buying 63000 Annual lease payment 23000 After    See Answer
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Green Valley Farms is considering either leasing or buying somenew farm equipment. The lessor will charge $23,000 a year lease.The purchase price is $63,000. The equipment has a 3-year lifeafter which time it will be worthless. Green Valley Farms usesstraight-line depreciation, has a 32 percent tax rate, borrowsmoney at 9 percent, and has sufficient tax loss carryovers tooffset any potential taxable income the firm might have over thenext five years. What is the net advantage to leasing?

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