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

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Finance

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 actual pre-tax salvage value is $34,000. The firm can borrow ata rate of 7.2%. The corporate tax rate is 25%. What would the NPVof the lease relative to the purchase be?
-$10,981.57
-$14,300.87
$15,296.51
$12,416.58
$17,319.72

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3.6 Ratings (692 Votes)

Solution The NPV of the lease relative to the purchase if theasset had a pretax salvage value of 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 actual pre-tax salvage value is $34,000. The firm can borrow ata rate of 7.2%. The corporate tax rate is 25%. What would the NPVof the lease relative to the purchase be?-$10,981.57-$14,300.87$15,296.51$12,416.58$17,319.72