Question

Marshall Corporation is considering leasing a new equipment. The lease lasts for 8 years. The lease calls for 8 payments of $102,000 per year with the first payment occurring immediately. The equipment would cost $680,000 to buy and would be straight-line depreciated to a zero salvage value over 8 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 7.2%. The corporate tax rate is 25%. What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in year 0?

		$592,500
		-$102,000
		-$501,500
		$603,500
		$87,500

Answer 1

Solution :

The after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in year 0 = $ 603,500

Thus the solution is option 4 = $ 603,500

Please find the attached screenshot of the excel sheet containing the detailed calculation for the above solution.