Question: Angie Corporation is evaluating whether to lease or purchase equipment. Its tax rate is 30 percent. If the company purchases the equipment for $2,000,000 it will depreciate it over 4 years, using straight-line depreciation. No salvage value is expected. If the company enters into a 4-year lease, the lease payment is $600,000 per year, payable at the beginning of each year. If the company purchases the equipment it will borrow from its bank at an interest rate of 10 percent.
A. Calculate cost of purchasing equipment
B. Calculate cost of leasing equipment
C. Calculate net advantage to leasing. Should company lease or buy equipment?