Assume That a fiRm Does Not Have to Pay Income

question 108

Multiple Choice

Assume that a firm does not have to pay income taxes due to a substantial loss carry-forward. The firm is debating between buying and leasing some equipment. In this situation, the firm will most
Likely be better off:

• A) Buying because there is no tax benefit to offset the cost of the lease payments.
• B) Buying because the loss carry-forward will offset the tax cost of purchasing.
• C) Leasing because the lessee can immediately enjoy the tax benefit of the purchase.
• D) Leasing and transferring the tax benefit of purchasing to the lessee.
• E) Leasing and thereby transferring at least a portion of the tax benefit to a lessor.