Question
Silver Bullet Train is planning to acquire a new Engine. The current market value of the Engine is $270,000, and the engine can be used
Silver Bullet Train is planning to acquire a new Engine. The current market value of the Engine is $270,000, and the engine can be used for 8 years. They have two options. Option A: They can lease the engine from Sky Motors Inc. who has agreed to lease the engine for 8 years at an annual lease payment of $49,000 (the first payment has to be made at the beginning of the period) Option B: They can get an 8-year, 12% interest loan of $270,000 from Nordic bank. The loan is to be paid-off in eight equal annual instalments (Payments will be made at the end of each year). The useful life of the asset for tax purpose is 6 years. The company follows a straight-line depreciation method. The engine has a residual value of $30,000. If the company pays 35% tax, which option should the company choose?
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