Biggie Corporation Can Buy an Auto for $29,500 (Including Taxes

Essay

Biggie Corporation can buy an auto for $29,500 (including taxes, license, and title fees) or it can lease the same car for $390 per month with $2,500 up front for tax, license, and fees. The corporation only keeps its cars for two years and it expects to be able to sell the car for $19,000 at the end of two years if it purchases the car. The corporation is in the 21 percent tax bracket, uses a 6 percent discount rate for evaluation, and assume that the lease inclusion amounts for years 1 and 2 are 70 and 150, respectively. Should Biggie Corporation buy or lease the auto in 2018 (assume lease payments are all made at the end of the year).