Should a company buy or lease the equipment

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Question - A Company is considering an acquisition of a transport equipment that costs $250,000. The equipment has estimated economic life of 5 years. If acquired, the equipment depreciates to zero book value under the straight-line depreciation method. Alternatively, A Co can lease the equipment from B, Inc. for annual beginning of year lease payments of $80,000 for five years. A's interest rate on its secured debt is 8% and its tax rate is 25%. B's interest rate is also 8%, but its tax rate is 30%.

a) Should A Company buy or lease the equipment?

b) Establish range of lease payments that will be acceptable to both A and B.

Reference no: EM132967757

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