A company has decided to undertake an investment project which involves the acquisition of a machine...
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A company has decided to undertake an investment project which involves the acquisition of a machine which costs £10,000. The machine has a 5 year life with 0 scrap value, 20% straight line writing down allowances are available. It could finance the acquisition at with a bank loan at 7.143% pre tax and purchase the asset outright or make 5 equal lease payments of £2500 in arrears. Tax is 30% payable in the same year in which profits are made. Required (a) Evaluate the lease from the lessee's viewpoint (b) Evaluate the lease from the lessor's view point (pays tax at 30%). A company has decided to undertake an investment project which involves the acquisition of a machine which costs £10,000. The machine has a 5 year life with 0 scrap value, 20% straight line writing down allowances are available. It could finance the acquisition at with a bank loan at 7.143% pre tax and purchase the asset outright or make 5 equal lease payments of £2500 in arrears. Tax is 30% payable in the same year in which profits are made. Required (a) Evaluate the lease from the lessee's viewpoint (b) Evaluate the lease from the lessor's view point (pays tax at 30%).
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Answer rating: 100% (QA)
A The lessees viewpoint The lessee would benefit from the lease in th... View the full answer
Related Book For
Advanced Accounting
ISBN: 978-1934319307
2nd edition
Authors: Susan S. Hamlen, Ronald J. Huefner, James A. Largay III
Posted Date:
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