Your Firm Is Considering Leasing a New Computer

question 28

Multiple Choice

Your firm is considering leasing a new computer. The lease lasts for 9 years. The lease calls for 10 payments of $1,000 per year with the first payment occurring immediately. The computer would cost $7,650 to buy and would be straight-line depreciated to a zero salvage value over 9 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 8%. The corporate tax rate is 30%. What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in year 0?

• A) -$4,865
• B) -$700
• C) $6,950
• D) $7,650
• E) None of these.

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Definitions:

Performance Potential

The capacity or ability of an individual or organization to achieve and maintain high levels of effectiveness and efficiency in their tasks or goals.

Complex

Composed of many interconnected parts or elements, denoting a system or problem that is difficult to understand, analyze, or solve.

Accepting Suggestions

The willingness to consider or adopt new ideas or recommendations from others.

Negotiating Conflict

The process of resolving disagreements or disputes through discussion, compromise, or other strategies to achieve a mutually acceptable outcome.