Pluto, inc. is trying to decide whether to lease or buy some new equipment. The equipment costs
Question:
Pluto, inc. is trying to decide whether to lease or buy some new equipment. The equipment costs $38,000, has a 3-year life and is worthless after the 3 years. The after-tax discount rate is percent.
The annual depreciation tax shield is $4,307 and the after-tax
annual lease payment is $9,240. What is the net advantage to leasing?
/1 mark
O a. -$2,641
O b. $1,333
O c. $3,427
O d. -$1,337
O e. $1,108
DogChew Products needs to replace its rawhide tanning and molding equipment. It can be used for five years and will have no salvage value. The equipment costs $930,000. The firm can lease it for $245,000 a year, or it can borrow the money to purchase the equipment at 9%. The firm's tax rate is 39%. The CCA rate is 20% (Class 8).
What is the after-tax lease payment?
• a. $149,450
O b. $245,000
O c. $106,150
O d. $95,550
O e. $123,350
Expert Answer:
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Corporate Finance
ISBN: 978-1259918940
12th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
