Webster's Tree Farm Is Considering the Purchase of a Backhoe

question 264

Multiple Choice

Webster's Tree Farm is considering the purchase of a backhoe costing $47,000. The backhoe can be leased for 5 years at $13,900 per year or it can be purchased at an interest rate of 7 percent. The estimated life of the backhoe is 5 years after which time it will be worthless. The corporate tax rate is generally 35 percent. However, the company does not expect to owe any taxes for the next 6 years due to accumulated net operating losses. The backhoe belongs in a 20 percent CCA class. What is the net advantage to leasing?

• A) -$13,982
• B) -$9,009
• C) -$6,111
• D) $189
• E) $3,007

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