1. Firm X needs 1 computer. There are two options available: Firm X can buy 1 computer for 2,000; or Firm X can enter into a true-tax lease for 2 years with 600 yearly payment, the first due immediately (3 payments: at 0,1, and 2). The cost of debt for Firm X is 5%. The corporate tax equals 35%. Firm X depreciates 1500 the first year and 500 the second year. The economic life of the computer is 2 years. Compute which method (buying or leasing) is the best to obtain the computer.

Which alternative is best

a. Lease

b. Buy

c. Leasing and Buying are equivalent

2.

Firm X needs 1 computer. There are two options available: Firm X can buy 1 computer for 2,000; or Firm X can enter into a non-tax lease for 2 years with 800 yearly payment, the first due immediately (3 payments: at 0,1, and 2). The cost of debt for Firm X is 5%. The corporate tax equals 35%. Firm X follows a straight-line depreciation method and the economic life of the computer is 2 years. Compute which method (buying or leasing) is the best to obtain the computer.

Which alternative is best:

a. Leasing and buying are equivalent

b. Buying

c. Leasing

3. Firm X needs 1 computer. There are two options available: Firm X can buy 1 computer for 2,000; or Firm X can enter into a true-tax lease for 2 years with Y yearly payment, the first due immediately (3 payments: at 0,1, and 2). The cost of debt for Firm X is 5%. The corporate tax equals 35%. Firm X follows a straight-line depreciation method and the economic life of the computer is 2 years. Compute which method (buying or leasing) is the best to obtain the computer.

For which value of Y Firm X is indifferent between leasing and buying? (choose the closest)

a. 600

b. 810

c. 700

d. 750