Business Services needs some office equipment costing $37,000. The equipment has a four-year life after which...

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

All information is provided. There is nomore to add to this question.

Solutions

Expert Solution

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.

jeff jeffy answered 1 year ago

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