Precision Tool Is Trying to Decide Whether to Lease or Buy

question 72

Multiple Choice

Precision Tool is trying to decide whether to lease or buy some new equipment for its tool and die operations.The equipment costs $1.2 million has a 7-year life,and will be worthless after the 7 years.The pre-tax cost of borrowed funds is 8 percent and the tax rate is 32 percent.The equipment can be leased for $242,500 a year.What is the net advantage to leasing?

• A)-$51,566
• B)-$34,211
• C)$37,549
• D)$56,828
• E)$79,664

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