Problem
Compare a capital lease with a credit purchase for a $150,000 asset, depreciable over 5 years, with a zero residual value. Lease payments are $37,000, due at the beginning of each of the next 5 years. Credit terms are 25% down payment and a loan payable in equal payments of principal and interest over 5 years at 10% interest. The investor's tax rate is 30% and the after-tax cost of capital is 8%. Investment tax credit and the MACRS apply.