You are deciding whether to lease or purchase a car. If you lease the car, your annual
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Question:
You are deciding whether to lease or purchase a car. If you lease the car, your annual payments will be $7,400 for the next four years (due at year-end). If you buy the car, you will pay $30,000 to purchase the car. You estimate the car will have a resale value of $12,000 at the end of four years. Assume the appropriate discount rate is 10%.
- Should you lease or buy the car?
- To answer this question, assume the NPV of the lease cost is $24,000. At what resale value in four years would you be indifferent between buying and leasing?
- Instead of buying the car for your personal use, you are buying the car for your business. The annual lease payments of $7,400 can be deducted from taxable income. If you purchase the car, you can depreciate the car straight-line to zero book value over four years. The purchase price of the car is $30,000 and the resale value is $12,000. Your marginal corporate tax rate is 40%. If you are acquiring the car for business, should you buy or lease the car?
Related Book For
Foundations of Finance The Logic and Practice of Financial Management
ISBN: 978-0132994873
8th edition
Authors: Arthur J. Keown, John D. Martin, J. William Petty
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