INN Competent Industries is considering the purchase of a $300,000 dollar asset that has a 5-year life. The asset will generate after-tax cash flows of $98,000 per year and the company has a marginal tax rate of 40 percent. The opportunity cost of capital is 12%. The equipment is in class 38 (CCA rate of 30%). The lease payments are $90,000 per year (beginning of the year) for 5 years and the before tax cost of borrowing in the lease is 9%.
a) Should the equipment be bought?
b. Should the equipment be leased?
c. What is the maximum payment that the company would consider making to at least break even on the leasing arrangement?

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Oyimovie2002 Oyimovie2002

14-06-2024
Mathematics

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INN Competent Industries is considering the purchase of a $300,000 dollar asset that has a 5-year life. The asset will generate after-tax cash flows of $98,000 per year and the company has a marginal tax rate of 40 percent. The opportunity cost of capital is 12%. The equipment is in class 38 (CCA rate of 30%). The lease payments are $90,000 per year (beginning of the year) for 5 years and the before tax cost of borrowing in the lease is 9%.
a) Should the equipment be bought?
b. Should the equipment be leased?
c. What is the maximum payment that the company would consider making to at least break even on the leasing arrangement?

Sagot :

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