You have been asked to assess whether your employer should buy or lease new equipment. If...
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You have been asked to assess whether your employer should buy or lease new equipment. If the company buys the equipment it will need to borrow $150,000. The loan payment would be an interest only payment with an interest rate of 15%. The term of the loan will be 5 years which would be equal to the estimated useful life of the equipment. The equipment is estimated to have a salvage value of $15,000. Annual maintenance costs for the purchased equipment are estimated to be $10,000. If your employer leases the equipment it will cost $47,500 per annum and the leasing company will pay all maintenance costs. Assuming an income tax rate of 10%, which would you recommend? Buy or lease? Show all of your work. 1 20.00% 2 33.33% Estimated Depreciation Rates 3 19.00% 4 12.00% 5 11.00% You have been asked to assess whether your employer should buy or lease new equipment. If the company buys the equipment it will need to borrow $150,000. The loan payment would be an interest only payment with an interest rate of 15%. The term of the loan will be 5 years which would be equal to the estimated useful life of the equipment. The equipment is estimated to have a salvage value of $15,000. Annual maintenance costs for the purchased equipment are estimated to be $10,000. If your employer leases the equipment it will cost $47,500 per annum and the leasing company will pay all maintenance costs. Assuming an income tax rate of 10%, which would you recommend? Buy or lease? Show all of your work. 1 20.00% 2 33.33% Estimated Depreciation Rates 3 19.00% 4 12.00% 5 11.00%
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Related Book For
Advanced Financial Accounting
ISBN: 978-0137030385
6th edition
Authors: Thomas Beechy, Umashanker Trivedi, Kenneth MacAulay
Posted Date:
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