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Question 4 A company has decided to acquire a new machine that can either be purchased for $2.400,000 and depreciated at a 30% CCA rate
Question 4
A company has decided to acquire a new machine that can either be purchased for $2.400,000 and depreciated at a 30% CCA rate or leased for a 5-year period for $560,000 per year (due at the beginning of each year). The firm can borrow at 9%, has a 35% marginal tax rate, and 15% WADC. The salvage value is expected to be zero. Assume the company has other assets in the same CCA class.
(a)
Should the company lease or buy the machine?
(b)
If there is an expected salvage value of $200,000, should the company lease or buy the machine?
Question 4
A company has decided to acquire a new machine that can either be purchased for $2.400,000 and depreciated at a 30% CCA rate or leased for a 5-year period for $560,000 per year (due at the beginning of each year). The firm can borrow at 9%, has a 35% marginal tax rate, and 15% WADC. The salvage value is expected to be zero. Assume the company has other assets in the same CCA class.
(a)
Should the company lease or buy the machine?
(b)
If there is an expected salvage value of $200,000, should the company lease or buy the machine?
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