Question: Lark Corporation is considering the acquisition of an asset for
Lark Corporation is considering the acquisition of an asset for use in its business over the next five years. However, Lark must decide whether it would be better served by leasing the asset or buying it. An appropriate asset could be purchased for $15,000, and it would qualify as a three-year asset under the MACRS classification. Assume that the election to expense assets under § 179 is made, but any available additional first-year depreciation is not claimed, and that the asset is not expected to have a salvage value at the end of its use by Lark. Alternatively, Lark could lease the asset for a $3,625 annual cost over the five-year period. If Lark is in the 34% tax bracket, would you recommend that Lark buy or lease the asset? In your calculations, assume that 10% is an appropriate discount factor.
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