Chapter Review and Self Test Problems

26.1 Lease or Buy Your company wants to purchase a new network file server for its wide-area computer network. The server costs $75,000. It will be completely obsolete in three years. Your options are to borrow the money at 10 percent or to lease the machine. If you lease, the payments will be $27,000 per year, payable at the end of each of the next three years. If you buy the server, you can depreciate it straight-line to zero over three years. The tax rate is 34 percent. Should you lease or buy?

26.2 NPV of Leasing In the previous question, what is the NPV of the lease to the lessor? At what lease payment will the lessee and the lessor both break even?

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