Your firm is considering leasing a new laser light. The lease lasts for 3 years. The lease calls for 4 payments of $10,000 per year with the first payment occurring immediately. The computer would cost $45,000 to buy and would be straight-line depreciated to a zero salvage value over 3 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 10%. The corporate tax rate is 35%.
a) What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in years 1-3?
b) What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in year 0?
c) What is the NPV of the lease relative to the purchase?
This solution provides a complete computation of the given finance problem formatted in Excel.