Waldrop Corporation must install $200 of new equipment in its Ohio plant. It can obtain a bank loan for 100% of the required amount at 7% interest on the loan. Alternatively, the firm can leas the equipment on a 2-year lease, the payment would be $110 at the beginning of each year. Assume that Waldrop's tax rate is 38% and that the equipment's depreciation would be $100 per year. In either case, the equipment is worth nothing after 2 years and will be discarded. What is the cost of owning?
Waldrop Corporation must install $200 of new equipment in its Ohio plant. It can obtain a bank loan for 100% of the required amount at 3% interest on the loan. Alternatively, the firm can leas the equipment on a 2-year lease, the payment would be $110 at the beginning of each year. Assume that Waldrop's tax rate is 35% and that the equipment's depreciation would be $100 per year. In either case, the equipment is worth nothing after 2 years and will be discarded. What is the cost of leasing?