In: Finance
Business Services needs some office equipment costing $37,000. The equipment has a four-year life after which it will be worthless. The firm uses MACRS depreciation which allows for 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percent depreciation over years 1 to 4, respectively. The equipment can be leased for $10,300 a year. The firm can borrow money at 7.5 percent and has a 34 percent tax rate. What is the incremental annual cash flow for year 3 if the company decides to lease the equipment rather than purchase it? |
-$8,897.70 |
-$9,286.04 |
-$9,389.16 |
-$9,407.22 |
-$8,662.36 |
Solution:
The incremental annual cash flow for year 3 if the company decides to lease the equipment rather than purchase it is = - $ 8,662.3560
= - $ 8,662.36 ( when rounded off to two decimal places )
Thus the solution is option 4 = - $ 8,662.36
Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.