A Machine That Will Be Worthless After Five Years Costs

A machine that will be worthless after five years costs $3.2 million. This machine can be leased for $760,000 per year for five years. Assume the machine, if purchased, would be depreciated straight-line to zero over its 5-year life. What is the net advantage to leasing this machine for a company that will pay no taxes over the lease period and has a pretax cost of borrowing of eight percent?

A) $282,706
B) $165,540
C) $121,409
D) $212,809
E) $228,315

Correct Answer:

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