Question
Please answer the following questions. You can create an excel sheet or a word document and upload the same. Q-3 Omni Enterprises is considering whether
Please answer the following questions. You can create an excel sheet or a word document and upload the same.
Q-3 Omni Enterprises is considering whether to borrow funds and purchase an asset or to lease the asset under an operating lease arrangement. If it purchases the asset, the cost will be $10,000. It can borrow funds for four years at 12 percent interest. The asset will qualify for a 25 percent CCA. Assume a tax rate of 35 percent.
The other alternative is to sign two operating leases, one with payments of $2,600 for the first two years and the other with payments of $4,600 for the last two years. In your analysis, round all values to the nearest dollar. The leases would be treated as operating leases. If the objective is to minimize the present value of after-tax costs, which alternative should be selected?
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