Your firm needs to either buy or lease $240,000 worth of vehicles. These vehicles have a life of 4 years after which time they are worthless. The vehicles belong in CCA class 10 (a 30% class) and can be leased at a cost of $70,000 a year for the 4 years.The lease payments are to be made at the beginning of the year. The corporate tax rate is 30% and the cost of debt is 8%. Assume the half-year rule is in effect.
1. What is the net advantage to leasing?
A) $1,109
B) $345
C) $78
D) -$18
E) -$142
2. The lessor in this case has a tax rate of 40% and a cost of debt equal to 7%. What is the net advantage of leasing to the lessor?
A) $626
B) $345
C) $78
D) -$18
E) -$142
3. What is the amount of the break-even lease payment to the lessor?
A) $47,740
B) $51,254
C) $63,334
D) $69,723
E) $74,421