In order to buy an automated packing machine for your factory, the cost would be $150,000. You have inquired at the bank about borrowing that amount and the bank would charge you a rate of 9.5% on the loan. The packing machine would be used for 10 years, at the end of which it would have no salvage value. It falls in an asset class with an allowable CCA rate of 10% per year. Use of the machine would reduce before-tax costs by $30,000 per year. Use of the machine would reduce packing machine from the manufacturer for lease payments of $25,000 per year (due at the beginning of each year). your firm's tax rate is 35%. Assuming that you will obtrain the new packing machine in some way, should you lease or buy it?

Answer rating: 100% (QA)

To determine whether you should lease or buy the packing machine we can compare the aftertax costs ... View the full answer