BigCo is considering leasing the new equipment that it requires, for $151,000 a year, payable in advance. The cost of the equipment is $900,000, has a CCA rate of 35% and will last for 6 years. The expected scrap value is $148,000. Assume that the first CCA tax deduction would be taken at the end of the first year. BigCo has lots of other equipment in this asset pool. The tax rate is 35% and the cost of debt is 9%. a. Should Big Co lease or buy the equipment? b. What is the maximum lease payment that would make BigCo indifferent between leasing or buying? (Round your answer to 4 decimal places.)

BigCo is considering leasing the new equipment that it requires, for $151,000 a year, payable in advance. The cost of the equipment is $900,000, has a CCA rate of 35% and will last for 6 years. The expected scrap value is $148,000. Assume that the first CCA tax deduction would be taken at the end of the first year. BigCo has lots of other equipment in this asset pool. The tax rate is 35% and the cost of debt is 9%. a. Should Big Co lease or buy the equipment? b. What is the maximum lease payment that would make BigCo indifferent between leasing or buying? (Round your answer to 4 decimal places.)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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BigCo is considering leasing the new equipment that it requires, for
$151,000 a year, payable in advance. The cost of the equipment is
$900,000, has a CCA rate of 35% and will last for 6 years. The expected
scrap value is $148,000. Assume that the first CCA tax deduction would be
taken at the end of the first year. BigCo has lots of other equipment in this
asset pool. The tax rate is 35% and the cost of debt is 9%.
a. Should BigCo lease or buy the equipment?
b. What is the maximum lease payment that would make BigCo indifferent
between leasing or buying? (Round your answer to 4 decimal places.)

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