McGraw-Hill's Taxation of Individuals and Business Entities 3rd Edition by Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver

Exercise 36

{Planning} Hillary is in the leasing business and faces a marginal tax rate of 35 percent.She has leased equipment to Whitewater Corporation for several years.Hillary bought the equipment for $50,000 and claimed $20,000 of depreciation deductions against the asset.The lease term is about to expire and Whitewater would like to acquire the equipment.Hillary has been offered two options to choose from: Ignoring time value of money, which option provides the greatest after-tax value for Hillary, assuming she is indifferent between the proposals based on nontax factors?