Should buck trade buy or lease the equipment

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Reference no: EM132059459

Buck Trade is evaluating a potential lease for a piece of equipment with a 4-year life that costs $75,000 and falls into the MACRS 3-year class. If the firm borrows and buys the equipment, the loan rate would be 10%. The equipment will be used for 4 years, at the end of which time it will be sold at an estimated residual value of $15,000. If Buck Trade buys the equipment, it would purchase a maintenance contract that costs $2,500 per year, payable at the beginning of each year. The lease terms, which include maintenance, call for a $18,500 lease payment (4 payments total) at the beginning of each year. Buck Trade’s tax rate is 25%. What is the net advantage to leasing? Should Buck Trade buy or lease the equipment? (Note: MACRS rates for Years 1 to 4 are 0.33, 0.45, 0.15, and 0.07.) ** please show all work **

Reference no: EM132059459

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