Your firm is considering leasing a new computer

Finance Nov 03, 2020

Your firm is considering leasing a new computer. The lease lasts for 4 years. The lease calls for 5 payments of $950 per year with the first payment occurring immediately. The computer would cost $7,080 to buy and would be depreciated using the straight-line method to zero salvage over 4 years. The firm can borrow at a rate of 6%. The corporate tax rate is 25%. What is the NPV of the lease?

Expert Solution

We see that the NPV of the lease=-950/6%*(1-1/1.06^5)*1.06+7080-(7080/4*25%)/6%*(1-1/1.06^4)
=1304.84043

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