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Calculate the net advantage to leasing

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Angie Corporation is evaluating whether to lease or purchase equipment. Its tax rate is 21%. If the company purchases the equipment for $2,000,000 it will depreciate it over 4 years, using straight-line depreciation. No salvage value is expected. If the company enters into a 4-year lease, the lease payment is $600,000 per year, payable at the beginning of each year. If the company purchases the equipment it will borrow from its bank at an interest rate of 10%.

Problem a. Calculate the cost of purchasing the equipment.

Problem b. Calculate the cost of leasing the equipment.

Problem c. Calculate the net advantage to leasing. Should the company purchase or lease the equipment?

Reference no: EM132790233

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