Answer to Question #316440 in Finance for h..

Question

Ford Motor has decided to buy a new equipment that costs $ 3,200,000. The equipment will be depreciated on a straight-line basis down to zero. The corporate tax rate is 35% and Ford Motor can borrow at 9%. Toyota Leasing Corp. is willing to lease the same equipment to Ford Motor for the lease payments of $ 0.95 million per year are due at the beginning of each of the four years of the lease.

a.             Should Ford Motor lease the equipment or buy it outright?

b.             What is the annual lease payment that will make Ford Motor indifferent to whether it leases the equipment or buys it?

Answer 1

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