22 Jul SHOULD MUFFIN LEASE OR OWN THE EQUIPMENT?
As a financial analyst for Muffin Construction you have been asked to recommend the method of finan Show more As a financial analyst for Muffin Construction you have been asked to recommend the method of financing the acquisition of new equipment needed by the firm. The equipment has a useful life of 8 years. If purchased the equipment which costs $700000 will be depreciated under the MACRS rules for 7-year class assets. If purchased the needed funds can be borrowed at a 10 percent pretax annual rate. Muffins weighted after-tax rate of capital is 12 percent. The actual salvage value at the end of 8 years is expected to be $50000. Muffins marginal ordinary tax rate is 40 percent. Annual beginning-of-year lease payments would be $160000. Compute the net advantage to leasing. Should Muffin lease or own the equipment? Show less
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