Lego Corporation is planning on replacing all of its copiers andhas decided on a model manufactured by Xerox. Lego has been offereda five-year lease, including all maintenance, for $1,000 per yearfor each copier. Lego has a tax rate of 25%, which results in anafter-tax cost of leasing of $750 per year. Lego is alsoconsidering purchasing the machines and wants to know the annualcost of purchasing so they can compare it to the $750 after-taxcost of leasing. Each copier would have a cost of $2,500 and bedepreciated straight-line over five years. A maintenance agreementwould run $500 per year. Paper and toner use would be identical,regardless of whether the copiers are leased or purchased and thecopier has no salvage value at the end of five years. With Lego’s25% tax rate and a required rate of return of 9%, calculate theEAA/EAC. Should they purchase or lease?
Solve with excel and show work
Answer Choices:
$3,472.41
-$892.73
$566.88
-$355.78
