Considering new office computer system

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Reference no: EM13875169

The L Company is considering a new office computer system. They can purchase the system for $21,000. If the computer system is purchased, it will be depreciated straight line over a five year life to a zero salvage value. However, they estimate that it could be sold for $5,000 at that time. Alternatively, L Company could lease the computer system for six payments of $2,000, with the first payment due immediately. L Company's before tax cost of debt is 11% and its marginal tax rate is 34%. The cost of leasing minus the cost of purchasing is:

a. $926

b. -$166

c. $1,249

d. -$132

Reference no: EM13875169

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