Scana Corporation is considering leasing a new equipment. The lease lasts for 5 years. The lease...

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Scana Corporation is considering leasing a new equipment. Thelease lasts for 5 years. The lease calls for 5 payments of $34,000per year with the first payment occurring immediately. Theequipment would cost $126,000 to buy and would be straight-linedepreciated to a zero salvage value over 5 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%. What is the NPV of the lease relative to the purchase if theasset had a pretax salvage value of $4,600 (ignoring any possiblerisk differences)?
-$20,274.43
-$16,783.21
-$11,466.25
$13,427.88
$21,197.33

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Solution The NPV of the lease relative to the purchase if theasset had a pretax salvage value of See Answer

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Scana Corporation is considering leasing a new equipment. Thelease lasts for 5 years. The lease calls for 5 payments of $34,000per year with the first payment occurring immediately. Theequipment would cost $126,000 to buy and would be straight-linedepreciated to a zero salvage value over 5 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%. What is the NPV of the lease relative to the purchase if theasset had a pretax salvage value of $4,600 (ignoring any possiblerisk differences)?-$20,274.43-$16,783.21-$11,466.25$13,427.88$21,197.33