1. Your firm is considering leasing a new computer. The lease lasts for 8 years. The lease calls for 8 payments of $8,000 per year with the first payment occurring immediately. The computer would cost $50,000 to buy and would be straight-line depreciated to a zero salvage value over 8 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 5%. The corporate tax rate is 34%. What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in year 0?
$50,000
$44,720
$42,000
-$37,650
-$8,000
2. Your firm is considering leasing a new computer. The lease lasts for 8 years. The lease calls for 8 payments of $8,000 per year with the first payment occurring immediately. The computer would cost $50,000 to buy and would be straight-line depreciated to a zero over 8 years. The actual pre-tax salvage value is $3,000. The firm can borrow at a rate of 5%. The corporate tax rate is 34%. What would the NPV of the lease relative to the purchase be?
-$2,780.42
-$4,064.08
-$3,927.15
$2,318.71
$3,061.26