A construction company is considering whether to lease or buy some necessary equipment it needs for a
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Question:
A construction company is considering whether to lease or buy some necessary equipment it needs for a project that will last the next 3 years. If the firm buys the equipment, it will buy outright for $4.8 million. If it leases the equipment, the firm will make three equal end-of-year lease payments of $2,100,000. The firm’s tax rate is 40% and the firm’s before-tax cost of debt is 10%. Annual maintenance costs associated with ownership are estimated to be $240,000 and the equipment will be depreciated on a straight-line basis over 3 years. (Note: enter all costs as negative numbers)
1. Find the cost of leasing
2. Find the cost of buying outright
Related Book For
Managerial Accounting
ISBN: 9780137689453
1st Edition
Authors: Jennifer Cainas, Celina J. Jozsi, Kelly Richmond Pope
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