Assume a firm is considering the purchase of a $6,000 asset in the three year macrs category (with a

Assume a firm is considering the purchase of a $6,000 asset in the three year MACRS category (with a four year write off) or enteriging into two sequential operating leases for two years each. Under the operating leases, the annual payments would be $1,400 on the first lease and $2,600 on the send lease. If a firm purchased the asset, it would pay $1893 annually to amortize a $6,000 loan over four years at 10 percent interest. This is based on the use of Appendix d for the present value of an annuity. The turn is in a 30 percent tax bracket. In doing our analysis, we look first at the aftertax costs of the operating lease arrangements in Table 16b-1. The tax shield in column 2 indicates the amount the lease payment will save us in taxes. In column 3 we see the net aftertax cost of the lease arrangements.
mikesgurl1972
Asked Apr 28, 2013

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