Bing Corporation can buy a car for business use for $40,000 (including tax, license, and title fees)

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Bing Corporation can buy a car for business use for $40,000 (including tax, license, and title fees) or it can lease an identical car for $450 per month, paying $2,100 up front for tax, license, and title fees. The corporation normally keeps its cars for three years and, if the car has been purchased, expects that it will be able to sell the car at the end of three years for $18,000. The corporation is in the 35 percent tax bracket and uses a 6 percent discount rate for evaluation purposes. (For simplicity, the monthly rental fees are assumed to be paid at the end of years 1,2, and 3) Should Bing purchase or lease the automobile? Prepare a schedule showing your calculations to support your recommendation.
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...
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Taxation For Decision Makers 2014

ISBN: 9781118654545

6th Edition

Authors: Shirley Dennis Escoffier, Karen Fortin

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