A Lease Has a Term of 5 Years with Annual

question 12

Multiple Choice

A lease has a term of 5 years with annual payments of $6,400.The asset would cost $45,000 to buy and would be depreciated straightline to a zero salvage value over 5 years.The actual salvage value is zero.If the firm has a tax rate of 21 percent,what is the incremental cash flow in Year 5 of leasing rather than purchasing?

• A)−$4,224
• B)−$3,198
• C)−$6,946
• D)−$7,250
• E)−$6,880

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