Steven's Auto Is Trying to Decide Whether to Lease or Buy

question 5

Multiple Choice

Steven's Auto is trying to decide whether to lease or buy some new equipment costing $23,000 that has a life of three years, after which it will be worthless. The aftertax discount rate is 5.8 percent. Assume the annual depreciation tax shield is $1,610 and the aftertax annual lease payment is $6,500. What is the net advantage to leasing?

• A) $1,241
• B) −$397
• C) $1,585
• D) $1,315
• E) −$863

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Definitions:

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A feature in project management or accounting software that allows users to track and record time spent on tasks and the associated costs.

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A software interface element that allows users to manage and remit the sales taxes collected from customers.

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Taxes imposed by the government on sales of goods and services, which are typically paid by the consumer at the point of sale.

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