Cayman Productions Is Considering Either Leasing or Buying Some Equipment

Cayman Productions is considering either leasing or buying some equipment. The lessor will charge $26,900 a year for a three-year lease. The purchase price is $72,600. The equipment has a three-year life after which time it will be worthless. The firm uses straight-line depreciation, borrows money at 8 percent, and expects sufficient losses to offset any taxes which otherwise might be owed for the next four years. What is the net advantage to leasing?

A) −$3,395
B) −$1,299
C) $3,276
D) $1,344
E) $2,858

Correct Answer:

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