Sprite Canada has decided to acquire a bottling machine for its existing plant the cost of the machine is 450000 in five years the machine is expected to have a salvage value of 150000 banks of nova scotia has agreed to advance funds for the entire purchase price at 8percent per annum payable in equal installments at the end of each year over the five years.

As an alternative, the machine could be leased over five years from the manufacturer metalworks LTD, with an annual lease payment of 100000 payable at the beginning of each year.

Sprite Canada`s tax rate is 40% its cost of capital is 15% and its tax shields are realized at the end of the year Bottling machines have a CCA rate of 20% if the machine is owned annual maintenance costs will be 5000

Required

Should Sprite Canada lease or buy its machine?

Answer rating: 100% (QA)

The following tables demonstrate how you can use a cash flow analysis to assist you with a leaseorbuy decision In this case if cost were the sole crit... View the full answer