Burton Enterprises Is Trying to Determine If Leasing Would Be

question 125

Multiple Choice

Burton Enterprises is trying to determine if leasing would be a better alternative than purchasing $61,000 of new equipment. The equipment has a 4-year life after which time it will be worthless.
The equipment belongs in a 20 percent CCA class and can be leased for $16,000 a year. The firm
Can borrow money at 7.25 percent and has a 35 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) -$28,020
• B) -$20,868
• C) -$14,243
• D) -$11,667
• E) -$9,564

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