Arco Corporation acquired some heavy equipment mid-year (in addition to the $2,600,000 in equipment purchased in January

Question:

Arco Corporation acquired some heavy equipment mid-year (in addition to the $2,600,000 in equipment purchased in January of this year). The new equipment is 7-year class property, but Arco expects to use the equipment for 8 years. It could purchase the equipment for $120,000 cash and at the end of 8 years it would have no salvage value. Alternatively, Arco could lease the equipment for 8 years for $22,000 annually. Arco is in the 35 percent marginal tax bracket and uses a 6 percent discount rate for evaluation. Should Arco purchase or lease the equipment? Prepare a schedule showing your calculations to support your recommendation.

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... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...