Question
The smiths are not sure whether they should buy or lease equipment. A five year lease could be arranged with annual lease payment of 5000$
The smiths are not sure whether they should buy or lease equipment. A five year lease could be arranged with annual lease payment of 5000$ payable at beginning of each year. The tax shield from lease payment is available at year end. The company tax rate is 25%. The equipment would cost $25000 and has a five year expected lifespan, and no residual value is expected. if purchased, asset would be financed through a term loan at 12%. The loan calls for equally payment to be made at end of end year for five years. Suppose that the equipment would qualify for CCA on a straight - line basis over five years. Required:
1. Calculate the cash flows for each financing alternate.
2. Which alternative is the most economical.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started