ABC Leasing

ABC Leasing has an after-tax cost of borrowing of 10%. The company is in a

35% tax bracket. A new machine will be purchased for $100,000. The straight-

line method is used to calculate depreciation. With heavy use, the salvage

value is zero. The firm now wants to rent out this machine for 5 years at a

required return of 15%. The first lease payment starts once the contract has

been signed. Furthermore, lease payments received by the lessor are fully

taxable.

58. Refer to Scenario: ABC Leasing. What is the net cost of this machine for

the lessor as a legal owner receiving all tax benefits?

a.

$19,057

b.

$29,318

c.

$73,465

d.

$100,000