A lease has a term of 8 years with annual payments of $21,400. The asset would cost $131,000 to buy and would be depreciated straight-line to a zero salvage value over 8 years. The actual salvage value is zero. If the firm has a tax rate of 30 percent, what is the incremental cash flow in Year 8 of leasing rather than purchasing?
$14,856.50 |
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-$16,375.00 |
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-$21,400.00 |
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$16,375.00 |
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-$19,892.50 |
Annual lease payments = 21400
Tax rate = 30%
Net Annual lease payment = 21400*(1-0.30) = 14980
Annual depreciation = 131000/8 = 16375
Tax savings on depreciation = 16375*30% = 4912.5
Incremental cash flow of purchasing in year 8= Tax flows on depreciation - Annual cash flow in purchasing
= -4912.5 - 14980 = -19892.5
A lease has a term of 8 years with annual payments of $21,400. The asset would...
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