Question
Maple Leafs Sports & Entertainment is considering purchasing one of the following two pieces of lighting equipment. Equipment A has a purchase price of $10
Maple Leafs Sports & Entertainment is considering purchasing one of the following two pieces of lighting equipment. Equipment A has a purchase price of $10 million and will cost, $240,000 pre-tax, to operate on an annual basis. This equipment will have to be replaced every 5 years and has a salvage value of $1 million. Equipment B on the other hand, has an initial cost of $14 million and costs $210,000 pre-tax, annually to operate. This equipment has a useful life of 7 years with a salvage value of $1.2 million. Both equipment sets are in an asset class with a CCA Rate of 30% and are otherwise identical. The income tax rate is 40 percent and the appropriate discount rate is 10%. Which equipment should the company purchase and why?
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