What is the incremental annual cash flow for year two

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Food Express is contemplating the acquisition of some new equipment costing $73,000. The equipment would be depreciated using MACRS depreciation which allows for 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percent depreciation over years 1 to 4, respectively. The equipment would be worthless after that time. The equipment can be leased for $19,600 a year for four years. The firm can borrow money at 9.5 percent and has a 34 percent tax rate. What is the incremental annual cash flow for year 2 if the company decides to lease the equipment rather than purchase it?

Reference no: EM131628463

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