Question
The BlueFins Company is trying to decide whether to lease or buy new computer-assisted vaccine producing equipment for a coronavirus vaccine. BlueFins has already determined
The BlueFins Company is trying to decide whether to lease or buy new computer-assisted vaccine producing equipment for a coronavirus vaccine. BlueFins has already determined that acquisition of the system has a positive NPV. The system costs $10 million and qualifies for a 25 percent CCA rate. The equipment will have a $2 million salvage value in 5 years. BlueFins' tax rate is 37 percent, and the firm can borrow at 7 percent. Novovax Leasing Company has offered to lease the vaccine equipment to BlueFins for payments of $2.5 million per year. Novovax's policy isto require its lessees to make payments at the start of the year. There are other assets in the same asset class as the vaccine producing equipment and the asset pool is open. A) What is the NAL for BlueFins? What is the maximum lease payment that would be acceptable to the company? (12 marks) B) Suppose it is estimated that the equipment will have no salvage value at the end of the lease. What is the maximum lease payment acceptable to BlueFins now?
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