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Kumquat Farms Ltd . has decided to acquire a mango picking machine. The cost of the picking machine is $ 2 4 , 0 0
Kumquat Farms Ltd has decided to acquire a mango picking machine. The cost of the picking machine is $ and it has an economic life of years. At the end of seven years, the market salvage value is estimated to be $ Seven years is the time horizon for analysis.
The owner of Kumquat Farms Ltd has discussed this acquisition with his financial services conglomerate.
It has agreed to lend him the purchase price at percent per year, payable in equal blended payments at the end of each year, for seven years.
An alternative method of financing the equipment would be to lease it from the local leasing store. Annual lease payments, payable at the beginning of each of the next seven years, would be $ This would be considered an operating lease.
The equipment has a capital cost allowance of percent. The benefits of any tax shields are realized at the end of each year. The company's tax rate is percent. Exotic Mango Farm's cost of capital is percent.
Should Kumquat Farms Ltd lease or buy the picking machine? Show all calculations.
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