Greenwood Ltd., one of the largest commercial builders in the city, has decided to purchase a new piece of equipment due to a very strong order book.You have just been hired as their new financial analyst and have been asked if the company should buy the equipment or lease it. The leasing contract would include maintenance. You have been given the following information:

Purchase price $70,000

Leasing term 4 years

Lease payments $19,400

4-year term loan 7.5%

Maintenance cost $950/year

Residual value none

Tax rate 32%

PV of CCA tax shield $23,800

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2. Should the company lease or buy the equipment? (5 marks)
4. If the equipment had a residual value, how would this impact the decision? (2 marks)
6. Discuss two other factors that should be taken into consideration when deciding if the company should buy or lease. (3 marks)

Answer rating: 100% (QA)

To determine whether Greenwood Ltd should lease or buy the equipment we need to compare the costs of both options and consider other factors Lets calc... View the full answer