A Firm Could Lease the Equipment in the Previous Question

question 23

Essay

A firm could lease the equipment in the previous question for $3,700 a year. If the firm purchased the equipment for $10,000, the maintenance expense will be $350 a year; depreciation is $2,500 annually, and the firm pays $250 to have the equipment removed. Construct projected annual cash outflows for each alternative. Assume a 25% income tax rate. Is leasing the better alternative if the firm uses 10 percent cost of funds?​

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