Help Search Your company wants to purchase a new wax pouring machine for your candle-making business. The machine costs $240,000. It will be obsolete in three years with zero salvage value. Your options are: 1. To borrow & buy the machine, at an interest rate on debt of 10% or 2. Lease the machine. If you lease, the lease payments are $90,000 per year, payable at the beginning of each year. If you buy the sequencer, you will use a CCA rate of 30%, calculated using the Accelerated Investment Incentive Method, and the asset pool will remain open after the machine becomes obsolete. The tax rate is 30%. Time Period 0 2 3 Initial Cost +$240,000 Lease Payments Lease Tax Shield CCA Tax Shield Terminal Loss Tax Shield Salvage Value Annual Cash Flows PV of Annual Cash Flows Net Advantage to Leasing What is the after-tax cost of debt that you should use for computing the PV of the lease? 10% 796 06% 08% 09% If you buy the machine, what is the PV of the tax shield from CCA? The PV of the tax shield from CCAI $60,288 The PV of the tax shield from CCA 567,758 The PV of the tax shield from CCA 15 556.469 None at the above are correct What is the Net Advantage to Leasing (NAL) for the lessee? The NALIS-$2.153 The NAL IS-S1,666 The NALIS 5245 The NAL155245 None of the above are correct Based on your analysis above, what action should the company take? OThey should lease the asset OThey should buy the asset The company is indifferent between leasing and buying. In general, which of the following statements are correct with respect to leasing? Cleasing is most advantageous when the lessee has a low tax rate and the lessor has a high tax rate Cleasing is most advantageous when the lessee has a high tax rate and the lessor has a low tax rate NOT have to appear on the The true value of leasing anses due to the fact that leases Balance Sheet of the lessee if it is an operating Lease) All of the above are true Only a) and are true