Question
United Charity has decided to acquire a new vehicle. Its cost is 51,000. In ten years it can be salvaged for $1,000. Westman Financing
United Charity has decided to acquire a new vehicle. Its cost is 51,000. In ten years it can be salvaged for $1,000. Westman Financing has agreed to advance funds for the entire purchase price at 9% per annum payable in equal installments at the end of each year over the ten years. As an alternative, the machine could be leased over the ten years from the manufacturer, Cars R Us with annual lease payments of $7,000 payable at the beginning of each year. United Charity's tax rate is 25%. It has a cost of capital is 16%, and its tax shields are realized at the end of the year. The new vehicle has a CCA rate of 30%. If the machine is owned, annual maintenance costs will be $1000.
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