Question

Fargo North is considering the purchase of some new equipment costing $75,000. This equipment has a...

Fargo North is considering the purchase of some new equipment costing $75,000. This equipment has a 2-year life after which time it will be worthless. The firm uses straight-line depreciation and borrows funds at a 10 percent rate of interest. The company's tax rate is 34 percent. The firm also has the option of leasing the equipment.

What is the amount of the break-even lease payment?

Can I calculate this without using Excel?

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Answer #1

Given,

Cost of equipment = $75000

Life = 2 years

Interest rate = 10% or 0.10

Tax rate = 34% or 0.34

Solution :-

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