Company C has a 21 percent marginal tax rate and uses an 8 percent discount rate to
Question:
Company C has a 21 percent marginal tax rate and uses an 8 percent discount rate to compute NPV. The company must decide whether to lease or purchase equipment to use for years 0 through 7. It could lease the equipment for $21,000 annual rent, or it could purchase the equipment for $100,000. The seller would require no money down and would allow Company C to defer payment until year 4 at 11.5 percent simple interest ($11,500 interest payable in years 1, 2, 3, and 4). The equipment would be seven-year MACRS recovery property with no residual value. Should Company C lease or purchase the equipment to minimize the after-tax cost of the use of the property for eight years?
Discount RateDepending 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...
Step by Step Answer:
Principles Of Taxation For Business And Investment Planning 2019 Edition
ISBN: 9781260161472
22nd Edition
Authors: Sally Jones, Shelley C. Rhoades Catanach, Sandra R Callaghan