Carsome Tire & Air-Con Services is considering a lease financing facility or a bank loan for...
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Carsome Tire & Air-Con Services is considering a lease financing facility or a bank loan for the use/purchase of a wheel balancing equipment. Purchase via bank loan option: Equipment cost of $50,000, with economic life of 4 years, depreciated annually based on accelerated recovery with annual rates as follows: Year 1 Year 3 Year 2 45% Year 4 7% 33% 15% Carsome can obtain a four-year term loan financing at 12% p.a, with interest calculated on yearly reducing balance. Instalment payments are to be made annually. Carsome must maintain the equipment at an annual cost of $3,000 payable at the end of the year. As a requirement, the equipment must be insured, with an annual insurance premium of $1,000 to be paid at the beginning of the year. Lease financing option Lease financing with four equal rental payments of $16,500, payment to be made in advance. Carsome intends to exercise the option to purchase the equipment at the end of the primary lease period for $5,000. Carsome tax rate is 40%. Should Carsome lease or borrow to purchase? Determine the Net Advantage to Leasing. Carsome Tire & Air-Con Services is considering a lease financing facility or a bank loan for the use/purchase of a wheel balancing equipment. Purchase via bank loan option: Equipment cost of $50,000, with economic life of 4 years, depreciated annually based on accelerated recovery with annual rates as follows: Year 1 Year 3 Year 2 45% Year 4 7% 33% 15% Carsome can obtain a four-year term loan financing at 12% p.a, with interest calculated on yearly reducing balance. Instalment payments are to be made annually. Carsome must maintain the equipment at an annual cost of $3,000 payable at the end of the year. As a requirement, the equipment must be insured, with an annual insurance premium of $1,000 to be paid at the beginning of the year. Lease financing option Lease financing with four equal rental payments of $16,500, payment to be made in advance. Carsome intends to exercise the option to purchase the equipment at the end of the primary lease period for $5,000. Carsome tax rate is 40%. Should Carsome lease or borrow to purchase? Determine the Net Advantage to Leasing.
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Answer rating: 100% (QA)
A Year 1 2 Cost of Equipment 3 Cash Flows 4 Annual Insurance premium 5 Maintenance cost 6 Interest T... View the full answer
Related Book For
Intermediate Accounting
ISBN: 978-0132162302
1st edition
Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Posted Date:
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