Steven's Auto Is Trying to Decide Whether to Lease or Buy

Steven's Auto is trying to decide whether to lease or buy some new equipment costing $23,000 that has a life of three years, after which it will be worthless. The aftertax discount rate is 5.8 percent. Assume the annual depreciation tax shield is $1,610 and the aftertax annual lease payment is $6,500. What is the net advantage to leasing?

A) $1,241
B) −$397
C) $1,585
D) $1,315
E) −$863

Correct Answer:

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