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Demonstrate what is the net advantage to leasing

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Problem 1: The Burger Joint is considering either leasing or buying a new freezer unit. The lessor will charge $13,300 a year for a 4-year lease. The purchase price is $38,000. The freezer has a 4-year life after which time it is expected to have a resale value of $12,000. The Burger Joint uses straight-line depreciation, borrows money at 7.5 percent, and has sufficient tax loss carryovers to offset any potential taxable income the firm might have over the next 5 years. What is the net advantage to leasing?

A. -$2,064

B. -$1,820

C. $218

D. $2,407

E. $3,735

Reference no: EM132743634

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