Maxine's Is Considering Either Purchasing or Leasing a $600,000 Piece

Multiple Choice

Maxine's is considering either purchasing or leasing a $600,000 piece of specialized equipment. The equipment has a life of 5 years, belongs in a 30% CCA class, and will have no residual value. The cost of debt is 12% for this purchase. A lease on the equipment for 5 years is priced at $150,000 a year. Maxine's corporate tax rate is 34%. The lessor has a tax rate of 35%.

What is the net advantage to leasing for the lessor?

A) -$18,568
B) -$17,640
C) -$17,488
D) -$16,813
E) $16,619