Precision Tool is trying to decide whether to lease or buy some new equipment for its...

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Finance

Precision Tool is trying to decide whether to lease or buy somenew equipment for its tool and die operations. The equipment costs$51,000, has a 3-year life and will be worthless after the 3 years.The pre-tax cost of borrowed funds is 7 percent and the tax rate is35 percent. The equipment can be leased for $16,000 a year. What isthe net advantage to leasing? (Do not round intermediatecalculations.)
a. $4,831
b. $6,451
c. $6,097
d. $1,443
e. $3,710

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4.1 Ratings (846 Votes)

Solution The Net advantage to leasing is 609678 6097 when rounded off to a whole numberThus See Answer

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Precision Tool is trying to decide whether to lease or buy somenew equipment for its tool and die operations. The equipment costs$51,000, has a 3-year life and will be worthless after the 3 years.The pre-tax cost of borrowed funds is 7 percent and the tax rate is35 percent. The equipment can be leased for $16,000 a year. What isthe net advantage to leasing? (Do not round intermediatecalculations.)a. $4,831b. $6,451c. $6,097d. $1,443e. $3,710