A firm needs to obtain a specialized machine, which would cost $5600 to buy. It would...

 

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A firm needs to obtain a specialized machine, which would cost $5600 to buy. It would be depreciated at the rate of $560 per year for both accounting and tax purposes, and it could be sold in five years for $980. The firm has the option of leasing the machine for five years. This would be an operating lease, with payments of $1120 per year at the beginning of each year. The company is subject to a tax rate of 35% and its pre-tax borrowing cost is 8%. What is the total discounted net after-tax cash flow associated with this proposed lease? A firm needs to obtain a specialized machine, which would cost $5600 to buy. It would be depreciated at the rate of $560 per year for both accounting and tax purposes, and it could be sold in five years for $980. The firm has the option of leasing the machine for five years. This would be an operating lease, with payments of $1120 per year at the beginning of each year. The company is subject to a tax rate of 35% and its pre-tax borrowing cost is 8%. What is the total discounted net after-tax cash flow associated with this proposed lease?

Answer rating: 100% (QA)

To calculate the total discounted net aftertax cash flow associated with the proposed lease we need to compare the cash flows from buying the machine ... View the full answer