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. Super Office Supplies, Inc. is considering leasing or buying copiers for each of its retail...

. Super Office Supplies, Inc. is considering leasing or buying copiers for each of its retail outlets.The total value of the copiers to be leased is $300,000. Super Office Supplies can borrow $300,000 from its bank, First National Bank at an interest rate of 6.76%, and then purchase the copiers. Super Office Supplies has an effective tax rate of 26%. Total “Depreciation Expense” on these copiers would total $100,000 per year during their three-year useful life, if they are purchased. If Super Office Supplies leased the copiers on a three-year lease, the lease payment would be $110,000 at the beginning of each of the three years of the lease contract. Whether the copiers are leased or purchased, they are assumed to have no value at the end of the three-year analysis term, due to their projected high usage rate, along with obsolescence issues that are projected to develop during the three years of their use. Should Super Office Supplies lease or buy these copiers? By what amount will they benefit if they select the option that you have recommended?

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Expert Solution

In this Leasing vs Buying decision we have use Present Value Method to analyse the two options and check which option is the best alternative for the company to go with the installation of Copiers.

I have solved this question on a notebook kindly see below images for solution.

Hence, after evaluating the two options based on Present Value , we have seen that the Leasing a Copiers is costing only $221,659.20 whereas Buying the same Copiers is costing $229,182.70 to the company.

Hence, company should go for Leasing the copiers.

Leasing Ve Buying is given that From the above question, it the Company has two options. option I lease the copiers, Rent / year = $110,000 (-) Tax @ 261. - 0 26X110,000 - 20600 Rent / year = $21.400 of Now, we will use present value to evaluate the lease payment option. But in this question required rate is not given to we will compute required rate using the rate of interest for loan payment and the benefit on interest because of the Tax. DI Discount Rate = loan interest ratex Tax rate = 6.76%x1-261) = 6.76 * 0.74 = 5.0024% So. PV @ 5.0024 1. for 3 years =

jeff jeffy answered 1 year ago
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