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What is the net advantage to leasing

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Question A: The Auto Mart is trying to decide whether to lease or buy some new equipment. The equipment costs $74,000, has a 3-year life, and will be worthless after the 3 years. The after-tax discount rate is 5.5 percent. The annual CCA tax shield is $8,633 and the after-tax annual lease payment is $16,033. What is the net advantage to leasing? 

Question B: Your company is considering the purchase of a fleet of cars for $195,000. It can borrow at 8.5%. The cars can be leased for $55,000 per year and will be worthless at the end of four years. The corporate tax rate is 34% and the cars belong in CCA class 10 (a 30% class). If you do not expect to pay taxes for the next four years, what is the net advantage to leasing? 

Please provide the authentic solutions along with all the calculation.

Reference no: EM132419153

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