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Your firm is considering leasing a new computer. The lease lasts for 9 years. The lease...

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Finance

Your firm is considering leasing a new computer. The lease lastsfor 9 years. The lease calls for 10 payments of $1,000 per yearwith the first payment occurring immediately. The computer wouldcost $7,650 to buy and would be straight-line depreciated to a zerosalvage value over 9 years. The actual salvage value is negligiblebecause of technological obsolescence. The firm can borrow at arate of 8%. The corporate tax rate is 30%.

What would the after-tax cash flow in year 9 be if the asset hada residual value of $500 (ignoring any possible riskdifferences)?

-$605

-$955

-$1,455

-$1,305

None of these

Answer & Explanation Solved by verified expert
3.7 Ratings (650 Votes)
Annual installments under buy borrow option Annual installments Cost 1 11rn r r 8 or 008 n 9 years Annual installments 7650 1 110089 008 Annual installments 7650 1 05003008 Annual installments 7650    See Answer
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Transcribed Image Text

Your firm is considering leasing a new computer. The lease lastsfor 9 years. The lease calls for 10 payments of $1,000 per yearwith the first payment occurring immediately. The computer wouldcost $7,650 to buy and would be straight-line depreciated to a zerosalvage value over 9 years. The actual salvage value is negligiblebecause of technological obsolescence. The firm can borrow at arate of 8%. The corporate tax rate is 30%.What would the after-tax cash flow in year 9 be if the asset hada residual value of $500 (ignoring any possible riskdifferences)?-$605-$955-$1,455-$1,305None of these

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