Firm after-tax interest rate

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Reference no: EM131810415

LoTech Welding can purchase a machine for $175,000 and depreciate it as 5-year MACRS property. Annual maintenance would be $9800, and its salvage value after 8 years is $15,000. The machine can also be leased for $35,000 per year on an "all costs" inclusive lease (maintenance costs included). Lease payments are due at the beginning of each year, and they are tax-deductible. The firm's combined tax rate for state and federal income taxes is 40%. If the firm's after-tax interest rate is 9%, which alternative has the lower EAC and by how much?

Reference no: EM131810415

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