Asked by
Moose Greely
on Dec 08, 2024
Verified
Stone Wall Builders is weighing a lease versus a purchase of some new machinery. The purchase price is $268,000. The equipment has a 4-year life and then is expected to have a resale value of $99,000. Stone Wall Builders uses straight-line depreciation and can borrow money at 7.5 percent. The equipment can be leased for $56,500 a year for 4 years. Stone Wall Builders does not expect to owe any taxes for the next 6 years because of accumulated net operating losses. What is the net advantage to leasing?
A) $4,632
B) $4,819
C) $4,924
D) $5,207
E) $5,697
Straight-Line Depreciation
A method of allocating the cost of a tangible asset evenly across its useful life.
Resale Value
The estimated amount for which an asset can be sold at the end of its useful life, considering factors like market demand and the asset's remaining utility.
Net Operating Losses
Financial losses that occur when a company's operating expenses exceed its revenues, which can be applied to reduce taxable income.
- Appraise the net financial advantage of leasing (NAL) and understand its effects.
- Acquire comprehension of the depreciation tax shield concept and its application in making leasing versus buying determinations.
- Recognize the effect that different tax levels have on decisions to either lease or purchase.
Verified Answer
HB
Learning Objectives
- Appraise the net financial advantage of leasing (NAL) and understand its effects.
- Acquire comprehension of the depreciation tax shield concept and its application in making leasing versus buying determinations.
- Recognize the effect that different tax levels have on decisions to either lease or purchase.