The Button Company Is Considering the Purchase of a New

question 33

Multiple Choice

The Button Company is considering the purchase of a new machine for $30,000 that has a life of 5 years and would be depreciated on a straightline basis to a zero salvage value over its life.The machine is expected to save the firm $12,500 per year in operating costs.There is no actual salvage value.Alternatively,the firm can lease the machine for $7,300 annually for 5 years,with the first payment due at the end of the first year.The firm's tax rate is 21 percent and its cost of debt is 10 percent.What is the net advantage to leasing for the lessee?

• A)−$1,134.40
• B)$1,602.15
• C)$1,869.12
• D)−$1,408.16
• E)$1,577.10