1. Furman Industries is negotiating a lease on a new piece of equipment that would cost $100,000 if pur­chased. The equipment falls into the MACRS 3-year class, and it would be used for 3 years and then sold, because Furman plans to move to a new facility at that time. The applicable MACRS depreciation rates are 0.33, 0.45, 0.15, and 0.07. It is estimated that the equipment could be sold for $30,000 after 3 years of use. A maintenance contract on the equipment would cost $3,000 per year, payable at the beginning of each year of usage. Conversely, Furman could lease the equipment for 3 years for a lease payment of $29,000 per year, payable at the beginning of each year. The lease would include maintenance. Furman is in the 20 percent tax bracket, and it could obtain a loan to purchase the equipment at a before-tax cost of 10 percent. Should Furman lease or buy the new equipment? [10]

2. Distinguish between Sale & Leaseback, operating leases and financial leases. [6]

 Would a firm be more likely to finance a fleet of trucks or a manufacturing plant with an operating lease (explain)?

Answer rating: 100% (QA)

Part A PartB SaleLeaseback An financial transaction in which organisation sells an asset to raise ca... View the full answer