Represent additional operating costs

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Reference no: EM13925271

XYZ Corp. is looking to lease some machinery from CamCorp. The cost of the machinery is $30,000 and the annual lease payments made at the beginning of each year are $8,000. The lease will last for 3 years, but the asset will be depreciated using a 5-year MACRS schedule. CamCorp. Pays $750 a year in property taxes, which represent “additional operating costs” and are made at the end of each year. The estimated salvage value of the asset at the end of the third year is $4,000. The corporate tax rate for both firms is 40%. If XYZ were to purchase the machinery their pre-tax cost of borrowing would be 10%. Further, XYZ has an after-tax WACC of 15%. Should XYZ Corp. lease the equipment?

Reference no: EM13925271

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