Lark Corporation is considering the acquisition of an asset for use in its business over the next

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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.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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South Western Federal Taxation 2018 Essentials Of Taxation Individuals And Business Entities

ISBN: 9781337386173

21st Edition

Authors: William A. Raabe, James C. Young, Annette Nellen, David M. Maloney

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