Answered step by step
Verified Expert Solution
Question
1 Approved Answer
J . Appleseed Ltd . is considering whether to borrow funds to purchase a machine for apple picking or lease the asset under an operating
J Appleseed Ltd is considering whether to borrow funds to purchase a machine for apple picking or lease the asset under an operating lease arrangement. The lease would be from the local leasing store with annual lease payments, payable at the beginning of each of the next seven years of $Seven years is the time horizon for the analysis. As an alternative, the owner has approached his bank to enquire about a loan to purchase the apple picking machine. The cost of the machine is $ and, at the end of seven years, the market salvage value is estimated to be $ The bank has informed him that they would charge percent per year payable annually, at the end of each year The equipment has a CCA rate of percent. The benefits of any tax shields are realized at the end of each year. The company's tax rate is percent. J Appleseed Ltds cost of capital is percent. Required: Gather the key facts and compute the followings in the table provided. A Present value of borrowtopurchase B Present value of the lease alternative C Which alternative would you choose? D Why would you choose that alternative?
J Appleseed Ltd is considering whether to borrow funds to purchase a machine for apple picking or lease the asset under an operating lease arrangement. The lease would be from the local leasing store with annual lease payments, payable at the beginning of each of the next seven years of $Seven years is the time horizon for the analysis.
As an alternative, the owner has approached his bank to enquire about a loan to purchase the apple picking machine. The cost of the machine is $ and, at the end of seven years, the market salvage value is estimated to be $ The bank has informed him that they would charge percent per year payable annually, at the end of each year
The equipment has a CCA rate of percent. The benefits of any tax shields are realized at the end of each year. The company's tax rate is percent. J Appleseed Ltds cost of capital is percent.
Required:
Gather the key facts and compute the followings in the table provided.
A Present value of borrowtopurchase
B Present value of the lease alternative
C Which alternative would you choose?
D Why would you choose that alternative?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started