Firm L needs 10 vans. There are two options available: Firm L can buy 10 vans for 120,000 and have an economic lifetime of 5 years; or Firm L can enter into a true-tax lease for 5 years with 30,000 yearly payment, the first due immediately (5 payments: 0,1,2,3,4). The cost of debt for Firm L is 10%. The corporate tax equals 35%. Firm L follows a straight-line depreciation method. Compute which method is the best to obtain the vans. Answer choices: A) Buying and Leasing are equivalent B) Leasing C) Buying with a loan
Firm L needs 10 vans. There are two options available: Firm L can buy 10 vans for 120,000 and have an economic lifetime of 5 years; or Firm L can enter into a true-tax lease for 5 years with 30,000 yearly payment, the first due immediately (5 payments: 0,1,2,3,4). The cost of debt for Firm L is 10%. The corporate tax equals 35%. Firm L follows a straight-line depreciation method. Compute which method is the best to obtain the vans. Answer choices: A) Buying and Leasing are equivalent B) Leasing C) Buying with a loan
Chapter19: Lease And Intermediate-term Financing
Section: Chapter Questions
Problem 8P
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Firm L needs 10 vans. There are two options available: Firm L can buy 10 vans for 120,000 and have an economic lifetime of 5 years; or Firm L can enter into a true-tax lease for 5 years with 30,000 yearly payment, the first due immediately (5 payments: 0,1,2,3,4). The cost of debt for Firm L is 10%. The corporate tax equals 35%. Firm L follows a straight-line
Answer choices:
A) Buying and Leasing are equivalent
B) Leasing
C) Buying with a loan
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