Reference no: EM132485413

Cost of Leasing

Question 1: Bird Wing Bedding can lease an asset for 4 years with payments of $20,000 due at the beginning of the year. The firm can borrow at a 10% rate and pays a 25% federal-plus-state tax rate. The lease qualifies as a tax-oriented lease. What is the cost of leasing? Do not round intermediate calculations. Round your answer to the nearest dollar.

Cost of Borrowing

Question 2: Comey Products has decided to acquire some new equipment having a $210,000 purchase price. The equipment will last 4 years and is in the MACRS 3-year class. (The depreciation rates for Year 1 through Year 4 are equal to 0.3333, 0.4445, 0.1481, and 0.0741.) The firm can borrow at a 9% rate and pays a 25% federal-plus-state tax rate. Comey is considering leasing the property but wishes to know the cost of borrowing that it should use when comparing purchasing to leasing and has hired you to answer this question. What is the correct answer to Comey's question? (Hint: Use the shortcut method to find the after-tax cost of the loan payments.) Do not round intermediate calculations. Round your answer to the nearest dollar.

Finance Lease: Net Advantage to Leasing

Question 3: Dunbar Corporation can purchase an asset for $22,000; the asset will be worthless after 14 years. Alternatively, it could lease the asset for 14 years with an annual lease payment of $2,369 paid at the end of each year. The firm's cost of debt is 8%. The IRS classifies the lease as a non-tax-oriented lease. What is the net advantage to leasing? Enter your answer as a positive value. Do not round intermediate calculations. Round your answer to the nearest cent.