Question
The ACME Supply company is considering producing strap-on rockets that can be purchased by clients with the intention of chasing down road-runners. In order to
The ACME Supply company is considering producing strap-on rockets that can be purchased by clients with the intention of chasing down road-runners. In order to produce these rockets ACME requires the use of a new machine that is a key component of the production process. This machine will be included in the ongoing class 8 asset pool. The CCA for class 8 assets is 20%. ACME is trying to determine whether they should lease this asset or purchase it. If they lease the asset they will have payments of $12,500 for 6 years, payments are made at the beginning of the period. If purchased the price of the asset is $52,000 which could be financed at 10% with a salvage value of $5,000 after the sixth year. ACME has a tax rate of 40% and a Cost of Capital of 15%. Should ACME buy or lease the asset? Make your decision on the supporting calculations. (Show all Calculations)
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