Asked by Juliana Gallego on Jul 04, 2024
Verified
The Discount Store is trying to decide whether to lease or buy some new equipment. The equipment costs $42,000, has a 4-year life, and will be worthless after the 4 years. The cost of borrowed funds is 9.5 percent and the tax rate is 34 percent. The equipment can be leased for $11,400 a year. What is the amount of the after-tax lease payment?
A) $3,876
B) $7,524
C) $8,126
D) $8,360
E) $9,814
After-Tax Lease Payment
After-tax lease payment refers to the lease expense remaining after deducting taxation benefits associated with the lease, illustrating the net cost of leasing to the lessee.
Borrowed Funds Cost
The interest rate and other fees that a borrower must pay for the use of borrowed money.
Tax Rate
How much of an individual's or a business's income is taken as tax by the government.
- Implement the notion of post-tax lease expenses in financial decision-making analyses.
Verified Answer
AS
ARSHDEEP SINGHJul 05, 2024
Final Answer :
B
Explanation :
The after-tax lease payment is calculated as the lease payment minus the tax savings from the lease payment. The tax savings are calculated as the lease payment times the tax rate. So, the after-tax lease payment = Lease payment - (Lease payment * Tax rate) = $11,400 - ($11,400 * 34%) = $11,400 - $3,876 = $7,524.
Learning Objectives
- Implement the notion of post-tax lease expenses in financial decision-making analyses.