Kelso Corporation is considering leasing a new equipment. The lease lasts for 8 years. The lease calls for 8 payments of $208,000 per year with the first payment occurring immediately. The equipment would cost $1,400,000 to buy and would be straight-line depreciated to a zero salvage value over 8 years. The firm can borrow at a rate of 5%. The corporate tax rate is 25%. The actual pre-tax salvage value is $75,000. What would the NPV of the lease relative to the purchase be?

Answer rating: 100% (QA)

First lets calculate the relevant cash flows for purchasing and leasing the equipment separately Pur... View the full answer