ABC Brickworks proposes to lease a $75,000 forklift. Five annual lease payments of $ 15,000 are due

Question:

ABC Brickworks proposes to lease a $75,000 forklift. Five annual lease payments of $ 15,000 are due in advance. ABC's tax rate is 35%. If it purchases the forklift, it will be in its own 25% CCA class. The half-year rule applies, the first CCA tax deduction is taken in year 0, and after 5 years the forklift will be worthless. The interest rate is 9%.
a. Using Table 17.1 as a guide, determine the cash flows of leasing rather than purchasing the forklift.
b. What are the equivalent loan and NPV of the lease?
c. If the forklift is expected to have a $10,000 salvage value after 5 years and the project's disĀ· count rate is 12%, what is the NPV of the lease?
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Fundamentals of Corporate Finance

ISBN: 978-1259024962

6th Canadian edition

Authors: Richard Brealey, Stewart Myers, Alan Marcus, Devashis Mitra, Elizabeth Maynes, William Lim

Question Posted: