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St. Andrews Inc is planning to lease a computer fo...




St. Andrews Inc is planning to lease a computer for $6000 per annum, payable in advance, for a period of 4 years. The lease will cover maintenance expenses. St. Andrews chairman feels that if he buys the same computer he should be able to sell it at 15% of the purchase price after 4 years. However, in case of purchase, the company must pay annual maintenance expenses of $1000 at the end of each year. The pretax cost of debt of St. Andrews is 10% and its income tax rate is 35%. If St. Andrews buys the computer, it will depreciate it fully in four years. What is the maximum price that St. Andrews should pay for this computer? Assume that St. Andrews can take the tax credit for lease payments a year later.,Thank you for the quick response! I will review today.


Paper#3981 | Written in 18-Jul-2015

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