Answer to Question #315812 in Finance for piki

Question

ABC has decided to buy a new equipment that costs $ 3,200,000. The equipment will be depreciated on a straight-line basis down to zero. The corporate tax rate is 35% and ABC can borrow at 9%. Toyota Leasing Corp. is willing to lease the same equipment to ABC for the lease payments of $ 0.95 million per year are due at the beginning of each of the four years of the lease.

a.                  Should ABC lease the equipment or buy it outright?

b.                 What is the annual lease payment that will make ABC indifferent to whether it leases the equipment or buys it?

Answer 1

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