The Burger Joint Is Considering Either Leasing or Buying a New

question 233

Multiple Choice

The Burger Joint is considering either leasing or buying a new freezer unit. The lessor will charge $13,300 a year for a 4-year lease. The purchase price is $38,000. The freezer has a 4-year life after which time it is expected to have a resale value of $12,000. The Burger Joint uses straight-line depreciation, borrows money at 7.5 percent, and has sufficient tax loss carryovers to offset any potential taxable income the firm might have over the next 5 years. What is the net advantage to leasing?

• A) -$2,064
• B) -$1,820
• C) $218
• D) $2,407
• E) $3,735

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