Your Firm Is Considering Leasing a New Computer

question 26

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 NPV of the lease relative to the purchase?

• A)$-1,039.78
• B)$339.78
• C)$360.22
• D)$6,610.22
• E)None of the above

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Definitions:

Compensating Differential

Additional income or benefits offered to employees to offset the unpleasant aspects or higher risks of a particular job.

Transfer Payments

Payments made by the government to individuals without any expectation of goods or services in return, such as welfare or social security.

Redistribution Programs

Government policies designed to redistribute income and wealth from wealthier segments of society to poorer ones, often through taxation, welfare, and public services.

Human Capital

The economic value of a worker's experience and skills, including education, training, intelligence, and health, influencing productivity and earning potential.