Question: You run a financial service firm where you replace your
You run a financial service firm where you replace your employee’s computers every three years. You have 5,000 employees, and each computer costs $2,500 currently—the old computers can be sold for $500. The new computers are generally depreciated straight line over their three-year lives to a salvage value of $500. A computer-service firm offers to lease you the computers and replace them for you at no cost if you will pay a leasing fee of $5 million a year (which is tax deductible). If your tax rate is 40%, would you accept the offer?
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