ABC Brickworks proposes to lease a $75,000 forklift. Five annual lease payments of $ 15,000 are due

Question:

ABC Brickworks proposes to lease a $75,000 forklift. Five annual lease payments of $ 15,000 are due in advance. ABC's tax rate is 35%. If it purchases the forklift, it will be in its own 25% CCA class. The half-year rule applies, the first CCA tax deduction is taken in year 0, and after 5 years the forklift will be worthless. The interest rate is 9%.

a. Using Table 17.1 as a guide, determine the cash flows of leasing rather than purchasing the forklift.

b. What are the equivalent loan and NPV of the lease?

c. If the forklift is expected to have a $10,000 salvage value after 5 years and the project's dis· count rate is 12%, what is the NPV of the lease?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...