1. A lease has a term of 5 years with annual payments of $6,400. The asset would cost $45,000 to buy and would be depreciated straight-line to a zero salvage value over 5 years. The actual salvage value is zero. If the firm has a tax rate of 34 percent, what is the incremental cash flow in Year 5 of leasing rather than purchasing?
-3,198
-7,284
-7,250
-6,880
-4224
2. Nu-Tek is considering leasing some equipment for 4 years with equal annual lease payments. The equipment would cost $74,000 to buy and would be depreciated straight-line over 4 years to a zero salvage value. The actual salvage value is zero. The applicable pretax borrowing rate is 7.3 percent. The lessee does not expect to owe taxes for several years while the lessor’s tax rate is 34 percent. What is the minimum lease payment that will be acceptable to both parties?
21,511.18
22,333.33
21,955.64
22,802.49
20,416.67