Buy or lease: depreciation and interest calculation
This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!
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 is 34 percent. Should you lease or buy?© BrainMass Inc. brainmass.com March 6, 2023, 1:28 pm ad1c9bdddf
We should compare the net cash flow of both methods:
If the firm buy, the interest expense every year is 75000*10%= $7500,
And the depreciation is 75000/3 = 25000
Which will be deducted ...
This job evaluates whether depreciation and interest calculation is best.