Your ﬁrm is considering leasing a new computer.The lease lasts for 9 years.The lease calls for 10 payments of £1,000 per year with the ﬁrst payment occurring immediately.The computer would cost
£7,650 to buy and would be straight-line depreciated to a zero salvage over 9 years.The actual
Salvage value is negligible because of technological obsolescence.The ﬁrm can borrow at a rate of
8%)The corporate tax rate is 30%.
What is the after-tax cash ﬂow from leasing relative to the after-tax cash ﬂow from purchasing in year
0?
A)£-4,865
B)£-700
C)£6,950
D)£7,650
E)None of the above.

Question

Quizplus · Accepted Answer

The Answer of Your ﬁrm is considering leasing a new computer.The lease lasts for 9 years.The lease calls for 10 payments of £1,000 per year with the ﬁrst payment occurring immediately.The computer would cost
£7,650 to buy and would be straight-line depreciated to a zero salvage over 9 years.The actual
Salvage value is negligible because of technological obsolescence.The ﬁrm can borrow at a rate of
8%)The corporate tax rate is 30%.
What is the after-tax cash ﬂow from leasing relative to the after-tax cash ﬂow from purchasing in year
0?
A)£-4,865
B)£-700
C)£6,950
D)£7,650
E)None of the above.

Your ﬁRm Is Considering Leasing a New Computer