Business Services Needs Some Office Equipment Costing $37,000

Business Services needs some office equipment costing $37,000. The equipment has a 4-year life and would be depreciated using the MACRS rates of 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percent over Years 1 to 4, respectively. The equipment can be leased for $10,300 a year. The firm can borrow at 7.5 percent and has a tax rate of 21 percent. What is the incremental annual cash flow for Year 3 if the company decides to lease the equipment rather than purchase it?

A) −$8,898
B) −$9,286
C) −$9,389
D) −$9,407
E) −$9,289

Correct Answer:

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