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

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Marshall Corporation is considering leasing a new equipment. Thelease lasts for 8 years. The lease calls for 8 payments of $102,000per year with the first payment occurring immediately. Theequipment would cost $680,000 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 7.2%. The corporate tax rate is25%. What is the after-tax cash flow from leasing relative to theafter-tax cash flow from purchasing in year 0?
$592,500
-$102,000
-$501,500
$603,500
$87,500

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4.3 Ratings (767 Votes)

Solution The aftertax cash flow from leasing See Answer

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Marshall Corporation is considering leasing a new equipment. Thelease lasts for 8 years. The lease calls for 8 payments of $102,000per year with the first payment occurring immediately. Theequipment would cost $680,000 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 7.2%. The corporate tax rate is25%. What is the after-tax cash flow from leasing relative to theafter-tax cash flow from purchasing in year 0?$592,500-$102,000-$501,500$603,500$87,500