Lease vs. Purchase Decision

Lease vs. Purchase Decision

In March 2013, Arco Corporation decides to acquire some heavy
equipment (this is in addition to the $2,500,000 in equipment
purchased in January of this year). The new equipment is 7-year
class property, but Arco expects that it will be able to use the
equipment for 8 years. It could purchase the equipment for $120,000
cash, and at the end of 8 years it would have no salvage value.
Alternatively, Arco could lease the equipment for 8 years for
$22,000 annually. Arco is in the 35 percent marginal tax bracket
and uses a 6 percent discount rate for evaluation. Should Arco
purchase or lease the equipment? Prepare a schedule showing your
calculations to support your recommendatio

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