What is breakeven rate to return of purchase versus lease

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Reference no: EM13690969

A plant can purchase for $1,000,000 or it can be leased for 200,000 per year. The annual income is expected to be $800,000 with the annual operating cost of 200,000. The resale value of the plant is estimated to be $400,000 at the end of its 10-year life. The company’s combined federal and state income tax rate is 40%. A straight-line depreciation can be used over the 10 years with the full first-year depreciation.

a) If the company uses the after-tax minimum attractive rate of 10%, should it lease or purchase the plant.

b) What is the breakeven rate to return of purchase versus lease?

Reference no: EM13690969

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