Question
A nail manufacturing company is considering replacing its plant either by leasing or purchasing through a simple bank loan.Details are given below Cost of Machine:
A nail manufacturing company is considering replacing its plant either by leasing or purchasing through a simple bank loan.Details are given below
Cost of Machine: P680,000
Tax rate: 30%
Cost of capital: 10%
Depreciation: 10% reducing balance;
LEASE DETAILS:
Annual Payment: P120,000 for 6 years
At the end of the 6th year, an additional payment of P300,000 will have to be paid to transfer ownership to the Company.
LOAN DETAILS
Annual payment: P156,133 for 6 years
Insurance payable at 3% of book value in advance
Required:
Should the company lease or purchase the plant? Use excel in answering the question
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Managerial Accounting Tools For Business Decision Making
Authors: Jerry J Weygandt, Paul D Kimmel, Jill E Mitchell
9th Edition
1119754054, 9781119754053
