Ray Corporation (AC) has the opportunity to buy or lease its next equipment installation. The purchase...

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Ray Corporation (AC) has the opportunity to buy or lease its next equipment installation. The purchase cost is $120,000 for the equipment, transportation and installation. The corporate cost of debt is 9% effective per year, and the weighted average cost of capital is 15%. The corporate tax rate is 32%. The CCA rate for this type of equipment is 30%. The life of the equipment is four years with a salvage value of $10,000. The federal government will provide a 3% immediate investment tax credit of the equipment purchase cost. If AC leases the equipment, it will cost $35,000 per year in advance for four years. The leasing company will cover $4,000 in annual costs AC would otherwise have to pay. Required a. Complete a lease-versus-purchase analysis of this equipment acquisition. b. Based on the net value to leasing (NVL), what is your recommendation? Are there other considerations besides the NVL that will influence the decision? Ray Corporation (AC) has the opportunity to buy or lease its next equipment installation. The purchase cost is $120,000 for the equipment, transportation and installation. The corporate cost of debt is 9% effective per year, and the weighted average cost of capital is 15%. The corporate tax rate is 32%. The CCA rate for this type of equipment is 30%. The life of the equipment is four years with a salvage value of $10,000. The federal government will provide a 3% immediate investment tax credit of the equipment purchase cost. If AC leases the equipment, it will cost $35,000 per year in advance for four years. The leasing company will cover $4,000 in annual costs AC would otherwise have to pay. Required a. Complete a lease-versus-purchase analysis of this equipment acquisition. b. Based on the net value to leasing (NVL), what is your recommendation? Are there other considerations besides the NVL that will influence the decision?

Answer rating: 100% (QA)

To conduct a leaseversuspurchase analysis for the equipment acquisition we need to compare the net present value NPV of both options buying and leasing Lets calculate the NPV for each and then compare ... View the full answer