Question
BAK Ltd has recently decided to go ahead with new sewing equipment for their business. The cost of the new equipment is $7,200,000 and is
BAK Ltd has recently decided to go ahead with new sewing equipment for their business. The cost of the new equipment is $7,200,000 and is estimated to have a salvage value of $600,000 in six years. The CCA rate for the new system is 22% and they will have other assets in this class for at least the next ten years. BAK can borrow from the bank at 9% and their current WACC is 16%. They have been offered to lease the sewing equipment for annual lease payments of $1,500,000, made at the beginning of each year for six years. BAK's marginal tax rate is 24%.
Required
Should BAK buy or lease the new sewing equipment?
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