Dairy Products Ltd. is trying to determine whether to lease or buy a new machine. The CCA
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Question:
- Dairy Products Ltd. is trying to determine whether to lease or buy a new machine. The CCA rate for the machine is 40%. The cost is estimated to be $100,000, with annual payments (whether leasing or buying) of $28,859.15. The machine will either be leased or purchased outright with a loan. In either case, payments will start at the end of the year. The machine has an economic life of four years. The appropriate discount rate is 6% and the tax rate is 30%.
- Required: Determine whether Dairy Products should lease the machine or buy it. Ignore the remaining UCC at the end of four years. Show all relevant calculations.
- Required:
- (a)Prepare the 4-year loan amortization schedule.
- (b)Prepare the 4-year capital cost allowance schedule under the purchase option.
- (c)Prepare the 4-year tax shield schedule for the purchase option.
- (d)Prepare the after-tax net present value of the purchase option. (e)Prepare the after-tax net present value of the lease option.
- (f)Is leasing or purchasing better for Dairy Products
Related Book For
Corporate Finance
ISBN: 978-1259918940
12th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
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