Lexmark Corporation is considering leasing a new equipment. The lease lasts for 8 years. The lease...

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Lexmark Corporation is considering leasing a new equipment. Thelease lasts for 8 years. The lease calls for 8 payments of $109,000per year with the first payment occurring immediately. Theequipment would cost $712,000 to buy and would be straight-linedepreciated to a zero salvage value over 8 years. The actualsalvage value is negligible because of technological obsolescence.The firm can borrow at a rate of 6.5%. The corporate tax rate is25%. The actual pre-tax salvage value is $50,000. What would theNPV of the lease relative to the purchase be?
-$13,418.59
-$15,096.83
$10,256.37
$13,628.39
$16,200.15

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4.0 Ratings (405 Votes)

Solution The NPV of the lease relative to the purchase is 1509683The solution is Option 2 See Answer

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Lexmark Corporation is considering leasing a new equipment. Thelease lasts for 8 years. The lease calls for 8 payments of $109,000per year with the first payment occurring immediately. Theequipment would cost $712,000 to buy and would be straight-linedepreciated to a zero salvage value over 8 years. The actualsalvage value is negligible because of technological obsolescence.The firm can borrow at a rate of 6.5%. The corporate tax rate is25%. The actual pre-tax salvage value is $50,000. What would theNPV of the lease relative to the purchase be?-$13,418.59-$15,096.83$10,256.37$13,628.39$16,200.15