Parker Limited is considering investing in a project that will result in annual before tax cashflows...

 

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Parker Limited is considering investing in a project that will result in annual before tax cashflows of N$48 million per year, for five (5) years. The company will need to invest in equipment which the company can either lease or purchase. The company could purchase the equipment at a cost of N$130 million and the expected residual value at the end of five (5) years is zero. The depreciation deduction is 20% per year straight-line. Namra approved this arrangement. Alternatively, the company could lease the equipment by making annual lease payments of N$32 million per year, payable in advance over five (5) years. The tax deduction relating to the lease payments will occur one year later after each lease payment. The tax rate is 30%. The company's cost of capital is 12%, whilst the cost of debt is 9.7222%. Required: 2.1 2.2 (3) Calculate the Weighted Average Cost of Capital for Parker Limited. Determine whether the company should lease or purchase the equipment. (12) Please provide full analysis for your decision. Parker Limited is considering investing in a project that will result in annual before tax cashflows of N$48 million per year, for five (5) years. The company will need to invest in equipment which the company can either lease or purchase. The company could purchase the equipment at a cost of N$130 million and the expected residual value at the end of five (5) years is zero. The depreciation deduction is 20% per year straight-line. Namra approved this arrangement. Alternatively, the company could lease the equipment by making annual lease payments of N$32 million per year, payable in advance over five (5) years. The tax deduction relating to the lease payments will occur one year later after each lease payment. The tax rate is 30%. The company's cost of capital is 12%, whilst the cost of debt is 9.7222%. Required: 2.1 2.2 (3) Calculate the Weighted Average Cost of Capital for Parker Limited. Determine whether the company should lease or purchase the equipment. (12) Please provide full analysis for your decision.

Answer rating: 100% (QA)

Q11 Calculate the Weighted Average Cost of Capital WACC for Parker Limited To calculate the WACC we need to consider the companys cost of debt and cost of equity The cost of debt is 97222 which is the ... View the full answer