Smith Meats Is Trying to Decide Whether to Lease or Buy

question 180

Multiple Choice

Smith Meats is trying to decide whether to lease or buy some new equipment. The equipment costs $62,000, has a 3-year life, and will be worthless after the 3 years. The pre-tax cost of borrowed
Funds is 9 percent and the tax rate is 35 percent. The equipment can be leased for $22,500 a year.
What is the net advantage to leasing assuming the firm is allowed to use straight-line method to
Account for depreciation?

• A) $2,970
• B) $3,272
• C) $3,308
• D) $3,369
• E) $3,411

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