Part 1

You company in interested in purchasing a CNC textile cutting machine to increase the volume of clothing that can be manufactured, and to reduce the workload on the staff by automating the process. Your company requires you to find a recommendation for a loan to purchase the equipment and to determine the best method of depreciation of the asset for your business

Analysis Instructions

This section is to help you in the analysis. These are not questions. Your report must be business advice based on your findings after performing the following analysis.

Part 1

Loan

The CNC textiles cutting table your company is interested in purchasing is valued at $29,000. The expected purchase date is the 1st October. According to the Australian taxation office (ATO) the working life of this equipment is 15 years.

You have two options for a loan to purchase this equipment.

1. A bank loan with 4.75% PA interest, with monthly repayments, compounded month, paid over a term of 4 years. This loan contains a $500 setup fee.

2. A manufacturer loan with an interest rate of 5.95% P.A with quarterly repayments, compounded quarterly, paid over 5 years. This loan contains a $100 setup fee.

Provide advice as to which loan you recommend.

Depreciation

Determine the depreciation schedule for the life of the CNC table using both the prime cost and diminishing value method, given the intended purchase date is the 1st October 2021.

Provide advice as to which depreciation method you recommend for your company. Show the differences graphically.