Make buying and leasing to be equivalent

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Reference no: EM13947876

Liberia Company needs a car, which it may lease by paying an initial fee of $2000, and lease payments for $400 a month in advance for 36 months. The cost of debt for the company is 12% and its tax rate 25%. The company pays its income tax annually. Liberia may also buy the car for $15,000, depreciate it fully over five years, but sell it at some unknown price after three years. Find the selling price of the car that will make buying and leasing to be equivalent. Should the company buy or lease the car? Answer is $1323.45, buy the car. Please show work.

Reference no: EM13947876

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