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A construction company is considering building a machine worth $ 200 million with an economic age of 4 years with two funding alternatives: (1) 100%
A construction company is considering building a machine worth $ 200 million with an economic age of 4 years with two funding alternatives: (1) 100% debt with 14% interest annually for 4 years; (2) leasing. The following data are known: - The economic life of the asset is 4 years, and will be depreciated using the straight-line depreciation method - Maintenance costs per year: $ 30 million - 25% corporate tax - Annual lease rent of $ 60 million - Net residual value of $ 25 million Calculate which alternative is more efficient?
A construction company is considering building a machine worth $ 200 million with an economic age of 4 years with two funding alternatives: (1) 100% debt with 14% interest annually for 4 years; (2) leasing. The following data are known:
- The economic life of the asset is 4 years, and will be depreciated using the straight-line depreciation method
- Maintenance costs per year: $ 30 million
- 25% corporate tax
- Annual lease rent of $ 60 million
- Net residual value of $ 25 million
Calculate which alternative is more efficient?
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