A company is considering the purchase of some equipment. The equipment costs $1,600,000. It lasts for...

A company is considering the purchase of some equipment. The equipment costs $1,600,000. It lasts for 4 years, and would be depreciated straight line to a zero salvage value. Alternatively, the company could lease the equipment for 4 years. The leasing contract would include maintenance, and the lease payments would be due at the end of each of the four years. The company’s before-tax cost of debt is 10%. The tax rate is 40%. What is the breakeven lease payment per year that would make the company indifferent between buying, and leasing the equipment?

Please show the calculations. Thank you.

Expert Solution

jeff jeffy answered 2 months ago

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