Buying and leasing using time value of money technique

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Reference no: EM1312868

Your law office needs a new copying machine, and you are considering two alternatives:

A. Buying a new copying machine: in this case, you will pay today $7,000. The annual expenses (maintenance and insurance) will be $700 and in addition you estimate that the cost per copy will be $0.3. The copying machine life span is 5 years and with straight line depreciation and no terminal value.

B. Lease a copying machine: in this case, you will pay a fix amount of $2,200 a year plus $0.4 per copy.

The law office tax rate is 35% and its discount rate is 8%. What is the minimal number of copies for which your law office should buy the machine instead of leasing it?

c. How will your answer change if the law office will have an accelerated depreciation of 2 years (meaning each year it can deduct 50% of the machine cost)?

Reference no: EM1312868

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