A man is unsure of how to acquire a new asset for his business. He has two options. For the first option he can buy it on January 1, 2022 (year 0) paying a total of $20,000 ($5,000 down and financing the remaining $15,000 with 10% per year interest payments and a final balloon payment of $15,000 at the end of year 4. The property would be 5 year MACRS property and there would be no 179 or bonus depreciation taken). The second option being considered is to lease the asset on January 1, 2021 for $8600 per year for 5 years. For all years, the tax rate that he will pay will be 25% and he uses a discount rate of 6%. Is it better for the man to lease or to purchase the new asset ?

Answer rating: 100% (QA)

All amounts are in Yearly Interest in Alternative 1 20000 5000 x 10 1500 Pr... View the full answer