Your Firm Is Considering Leasing a New Computer

Your firm is considering leasing a new computer. The lease lasts for 9 years. The lease calls for 10 payments of $1,000 per year with the first payment occurring immediately. The computer would cost $7,650 to buy and would be straight-line depreciated to a zero salvage value over 9 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 8%. The corporate tax rate is 30%. What is the NPV of the lease relative to the purchase?

A) -$1,039.78
B) $339.78
C) $360.22
D) $6,610.22
E) None of these.

Correct Answer:

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