Question

Scana Corporation is considering leasing a new equipment. The lease lasts for 5 years. The lease calls for 5 payments of $34,000 per year with the first payment occurring immediately. The equipment would cost $126,000 to buy and would be straight-line depreciated to a zero salvage value over 5 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 6.5%. The corporate tax rate is 25%. What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in year 2?

		$21,400
		-$34,000
		-$31,800
		$25,600
		-$42,500

Answer 1

Solution :

The after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in year 2 = - $ 31,800

The solution is Option 3 : - $ 31,800

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.