You run a financial service firm where you replace your employees computers every three years. You have
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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?
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...
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Total Cost of Buying Computers 2500 5000 12500000 PV of Salvage 25000...View the full answer
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Aysha Ali
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