Your firm is considering either leasing or buying some new equipment. The lessor will charge $13,800 a year for 4 years

Your firm is considering either leasing or buying some new equipment. The lessor will charge $13,800 a year for 4 years should you decide to lease. The purchase price is $47,800. The equipment has a 4-year life after which it is expected to have a resale value of $8,400. Your firm uses straight-line depreciation, borrows money at 10 percent, and has a 33 percent tax rate. What is the aftertax salvage value of the equipment?    A.  $5,544 B.  $5,628 C.  $5,709 D.  $5,748 E.  $5,820 Aftertax salvage value = $8,400 (1 - 0.33) = $5,628

52.

J&K Enterprises is considering either leasing or buying some new equipment. The lease payments would be $3,800 a year. The purchase price is $19,900. The equipment has a 6-year life after which it is expected to have a resale value of $2,100. Your firm uses straight-line depreciation, borrows money at 11.5 percent, and has a 33 percent tax rate. What is the aftertax salvage value of the equipment?    A.  $1,407 B.  $1,428 C.  $1,471 D.  $1,476 E.  $1,512 Aftertax salvage value = $2,100 (1 - 0.33) = $1,407

53.

Cross Town Express is contemplating the acquisition of some new equipment. The purchase price is $74,000. The equipment would be depreciated using 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 would be worthless after that time. The equipment can be leased for $19,100 a year for 4 years. The firm can borrow money at 9.5 percent and has a 28 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?    A.  -$16,823 B.  -$15,797 C.  $14,312 D.  $15,797 E.  $16,823 CF3 = -1 {[$19,100 (1 - 0.28)] + [$74,000 (0.1482) (0.28)]} = -$16,823

54.

Interstate Services needs some equipment costing $61,000. The equipment has a 4-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 $16,000 a year. The firm can borrow money at 7.5 percent and has a 36 percent tax rate. What is the incremental annual cash flow for year 2 if the company decides to lease the equipment rather than purchase it?    A.  -$18,897 B.  -$19,286 C.  -$19,389 D.  -$19,407 E.  -$19,999 CF2 = -1 {[$16,000 (1 - 0.36)] + [$61,000 (0.4444) (0.36)]} = -$19,999