Question
The department of Materials Engineering at a global aeronautical company is contemplating leasing a materials strength testing machine. The machine costs R5 000 000, and
The department of Materials Engineering at a global aeronautical company is contemplating leasing a materials strength testing machine. The machine costs R5 000 000, and it would be depreciated in a straight line to zero over four years. Because of wear and tear it will be completely value-less in four years. They can lease it for R1 000 000 per year for four years. Suppose the entire purchase price of the machine is borrowed. The rate on the loan is 10%, the loan will be repaid in equal instalments. The tax rate is 28%. Show whether the net advantage of leasing (NAL) is the same as buying.
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