Answered step by step
Verified Expert Solution
Question
1 Approved Answer
YVR Travel Co., a Vancouver-based tour operator, has decided to replace its fleet of buses and must decide how to finance the new bus acquisition.
YVR Travel Co., a Vancouver-based tour operator, has decided to replace its fleet of buses and must decide how to finance the new bus acquisition. The buses cost $2 million to purchase and are expected to have a useful life of 10 years, after which they will be sold for $200,000. One financing alternative is a bank loan at the rate of 6%. Another alternative is to lease the buses for $250,000 for 10 years with payments at the beginning of the year. If the company leases these buses, it will not be responsible for maintenance and insurance costs of $50,000 at the end of each year, but it will have the same basic operating costs as if it had purchased the buses. The CCA rate is 20%, the tax rate is 40%, and the weighted average cost of capital is 12%. Which financing alternative should the company choose? YVR Travel Co., a Vancouver-based tour operator, has decided to replace its fleet of buses and must decide how to finance the new bus acquisition. The buses cost $2 million to purchase and are expected to have a useful life of 10 years, after which they will be sold for $200,000. One financing alternative is a bank loan at the rate of 6%. Another alternative is to lease the buses for $250,000 for 10 years with payments at the beginning of the year. If the company leases these buses, it will not be responsible for maintenance and insurance costs of $50,000 at the end of each year, but it will have the same basic operating costs as if it had purchased the buses. The CCA rate is 20%, the tax rate is 40%, and the weighted average cost of capital is 12%. Which financing alternative should the company choose
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