. LoTech Welding can purchase a machine for $175,000 and depreciate it as 5-year MACRS property. Annual maintenance would be $9800, and its salvage value after 8 years is $15,000. The machine can also be leased for $35,000 per year on an "all costs" inclusive lease (maintenance costs included). Lease payments are due at the beginning of each year, and they are tax-deductible. The firm's combined tax rate for state and federal income taxes is 28%. If the firm's after-tax interest rate is 28%, which alternative has the lower EAC and by how much?

. LoTech Welding can purchase a machine for $175,000 and depreciate it as 5-year MACRS property. Annual maintenance would be $9800, and its salvage value after 8 years is $15,000. The machine can also be leased for $35,000 per year on an "all costs" inclusive lease (maintenance costs included). Lease payments are due at the beginning of each year, and they are tax-deductible. The firm's combined tax rate for state and federal income taxes is 28%. If the firm's after-tax interest rate is 28%, which alternative has the lower EAC and by how much?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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