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PLEASE ANSWER IT WITH FORMULA Jennie Aircond (JA) SDN is considering a lease financing facility or a bank loan for the use/purchase of a wheel
PLEASE ANSWER IT WITH FORMULA
Jennie Aircond (JA) SDN is considering a lease financing facility or a bank loan for the use/purchase of a wheel balancing equipment. Purchase via bank loan option: Equipment cost of $50,000, with economic life of 4 years, depreciated annually based on accelerated recovery with annual rates as follows: Year 1 Year 2 Year 3 Year 4 33% 45% 15% 7% JA can obtain a four-year term loan financing at 12% p.a, with interest calculated on yearly reducing balance. Instalment payments are to be made annually. JA must maintain the equipment at an annual cost of $3,000 payable at the end of the year. As a requirement, the equipment must be insured, with an annual insurance premium of $1,000 to be paid at the beginning of the year. Lease financing option: Lease financing with four equal rental payments of $16,500, payment to be made in advance. JA intends to exercise the option to purchase the equipment at the end of the primary lease period for $5,000. JA tax rate is 40%. Should JA lease or borrow to purchase? Determine the Net Advantage to LeasingStep by Step Solution
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