Reference no: EM131843258
1. A lease has a term of 3 years and has annual payments of $25,000. The leased asset would cost the company $74,000 to buy and would be depreciated straight-line to a zero salvage value over 3 years. The actual salvage value is of the asset is negligible. The lessee can borrow at a rate of 12% and has a tax rate of 35%. What is the incremental cash flow of purchasing instead of leasing for Year 3 from the lessee’s perspective?
-$24,883.33
$24,883.33
$16,250.00
-22,406.67
-$16,250.00
2. Three years ago, you purchased some 5-year MACRS equipment at a cost of $135,000. The MACRS rates are 20 percent, 32 percent, 19.2 percent, 11.52 percent, 11.52 percent, and 5.76 percent for Years 1 to 6, respectively. You sold the equipment today for $82,500. Which of these statements is correct if your tax rate is 34 percent?
The tax refund from the sale is $13,219.20.
The book value today is $40,478.
The taxable amount on the sale is $47,380.
The tax due on the sale is $14,830.80.
The book value today is $37,320.
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: What is the incremental cash flow of purchasing instead of leasing for Year 3 from the lessee’s perspective?
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