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Lear Corporation has decided to acquire a new equipment at a cost of $698,000. The equipment...

Lear Corporation has decided to acquire a new equipment at a cost of $698,000. The equipment has an expected life of 6 years and will be depreciated using 5-year MACRS with rates of .20, .32, .192, .1152, .1152, and .0576 (note that 5-year MACRS depreciation actually takes place over 6 years). There is no actual salvage value. Riverhawk Financing has offered to lease the equipment to Lear for $135,000 a year for 6 years. Lear has a cost of equity of 11.2 percent, a pre-tax cost of debt of 5.8 percent, and a marginal tax rate of 25 percent. Should Lear lease or buy?

Lear should lease because NPV = $18,028.72

Lear should lease because NPV = $21,209.58

Lear should buy because NPV = $15,763.87

Lear should buy because NPV = $10,933.18

Lear should lease because NPV = $10,805.47

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jeff jeffy answered 1 month ago
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