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What is the net cost of this machine for the lessor

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Question - ABC Leasing

ABC Leasing has an after-tax cost of borrowing of 10%. The company is in a 35% tax bracket. A new machine will be purchased for $100,000. The straight- line method is used to calculate depreciation. With heavy use, the salvage value is zero. The firm now wants to rent out this machine for 5 years at a required return of 15%. The first lease payment starts once the contract has been signed. Furthermore, lease payments received by the lessor are fully taxable.

Refer to Scenario: ABC Leasing. What is the net cost of this machine for the lessor as a legal owner receiving all tax benefits?

a. $19,057

b. $29,318

c. $73,465

d. $100,000

Reference no: EM132606871

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