Lease versus Buying Question

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motherrussia | 01:20 Tue 15th Apr 2008 | Business & Finance
1 Answers
I know its quite long

The total cost of the equipment including delivery and installation was estimated to be $100,000. 3-year Modified Accelerated Cost Recovery schedule rates could be used to depreciate the equipment.

The money for the equipment could be easily borrowed from their bank at a rate of 10% per year over a 5-year term.

You could lease the needed equipment and appliances from AAA Leasing Company for an annual lease payment of $25,000 over a 5-year term. The lease would carry an option to buy the equipment for $40,000 at the end of 5 years. Maintenance costs on the new equipment were estimated to be $2,000 per year and would be covered by the annual lease payment. The increased efficiency of the new equipment was expected to result in the net cost savings of $4,000 per year.

7. If AAA Leasing Company's tax rate is 40%, what is the minimum lease payment that it would be willing to accept? Explain.
8. What is the maximum lease payment that youshould be willing to pay? Explain.
14. All things considered, should you lease or borrow and buy the equipment? Explain.


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If you are an American (which I presume you are because of the dollar symbols) then you would be better off looking for an American site - this is predominately a British site (thought there are some Americans who come on).

Otherwise, any answers you get on here will rely on British regulation and I am sure that the accounting methods used in America will be different

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