Pressley's Inc

Pressley's Inc. can purchase some equipment for $620,000 that has a life of four years, after which it will be worthless. The pretax cost of borrowed funds is 7.8 percent and the corporate tax rate is 21 percent. The firm expects significant operating losses for at least the next five years and thus expects to pay no taxes during this period. The equipment can be leased for $182,000 a year. What is the net advantage to leasing?

A) $14,500
B) −$3,431
C) $13,754
D) $20,628
E) −$7,967

Correct Answer:

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