The firm requires a machine for a new project. The project will last three years. The machine
Question:
The firm requires a machine for a new project. The project will last three years. The machine will provide $100,000 in annual pre-tax cost savings for three years. The new machine can be purchased for $60,000. The machine will be depreciated at a CCA rate of 30% and will be worth $20,000 at the end of year 3. The asset pool will be continuing with positive net addition after the new machine is sold. The corporate tax rate is 30%. A Leasing Corporation offers to lease the same machine to the firm. Lease payments of $10,000 per year are due at the beginning of each year. The firm's borrowing rate (before tax) is 12%. Should the firm lease the machine or buy it
Fundamental Managerial Accounting Concepts
ISBN: 978-0078025655
7th edition
Authors: Thomas Edmonds, Christopher Edmonds, Bor-Yi Tsay, Philip Old