Calculate the after-tax cost if company c buys the equipment

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Reference no: EM132835746

Company C has a 21 percent marginal tax rate and uses an 8 percent discount rate to compute NPV. The company must decide whether to lease or purchase equipment to use for years 0 through 7. It could lease the equipment for $21,000 annual rent, or it could purchase the equipment for $100,000. The seller would require no money down and would allow Company C to defer payment until year 4 at 11.5 percent simple interest ($11,500 interest payable in years 1, 2, 3, and 4). The equipment would be seven-year MACRS recovery property with no residual value.

Problem 1: Calculate the after-tax cost if Company C buys the equipment.

Problem 2: Calculate the after-tax cost if Company C leases the equipment.

Problem 3: Should Company C lease or purchase the equipment to minimize the after-tax cost of the use of the property for eight years?

Reference no: EM132835746

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