If company purchase an asset it will cost $10,000. It can borrow funds for four years at 12% interest. The firm will use the three-year MACRS depreciation category (with the associated four-year write-off).
Assume a tax rate of 35%. The other alternative is to sign two operating leases, one with payments of $2600 for the first 2 years, and the other with payments of $4600 for the last two years.
A. compute the after tax cost of the leases for the four years
B. compute the annual payment for the loan