ABC is in the 20 percent tax bracket, and it could obtain a three-year simple interest loan to purchase the equipment at a before tax cost of 10 percent. Should ABC lease or buy?

Buy or lease : 2 problems

In this situation, ABC should look into leasing instead of buying the equipment as it will provide them with several financial benefits. Firstly, leasing eliminates any up-front costs associated with purchasing an asset outright which can be beneficial for organizations that do not have sufficient capital available. Additionally, lease payments are classified as operating expenses rather than long-term liabilities – thus allowing ABC to use tax deductions from interest payments in order to reduce their current income tax burden.

Furthermore, if certain conditions are met then leased asset can be depreciated over its useful life – resulting in further savings due to deductions generated from depreciation allowances. However these advantages come at cost; since renting usually require signing a contract that binds company for pre-determined time period and also entails having to pay maintenance fees or early termination charges when necessary.

Nonetheless such disadvantages may be offset by lower borrowing costs since 3 year loan offered has relatively low rate compared other funding options available; additionally ABC has capacity to make regular payments without straining themselves too much.

In conclusion, it would be beneficial for ABC to enter into a lease agreement when acquiring new equipment as this will enable them enjoy multiple financial gains while avoiding up-front expenditure requirements.