Pure Limestone Ltd. needs to acquire a piece of mining equipment which will cost the company $70,000.
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Question:
The company's bank has agreed to advance funds for the entire purchase price at 8 percent per annum payable in equal installments at the end of each year over the 10 years.
Alternative, the machine could be leased over the 10 years from the manufacturer, by way of an operating lease with annual lease payments of $8,500.
The company's tax rate is 40 percent, and its cost of capital is 12 percent. The equipment has a CCA rate of 30 percent.
If the machine is owned, annual maintenance costs will be $800.
Required: Advise the company which alternative they should choose, providing them with calculations to support your recommendation.
Related Book For
Engineering Economy
ISBN: 978-0132554909
15th edition
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
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