Jack Toronto is the newly recruited financial analyst of Von Mining Company Ltd. He has been asked to analyze a proposal to acquire a drilling machine. He received the appropriation capital request. Von Mining Company can purchase the drilling machine for GH¢ 50,000. Von Mining Company Ltd can also lease the drilling machine for GH¢12,200 a year for a 5-year period from Trosky Leasing Ltd. The expected life of the machine is given as 5 years and expected to have a salvage value of GH¢5000 in 5 years’ time. The mining company intends to buy the drilling machine a fair market value at that time. If the mining company decides to buy the machine, it can acquire financing at 20%. It will cost the Mining Company GH¢6,000 in maintenance and insurance of the drilling machine. The tax rate is 34%. Assume
Required:
a). Calculate
b). What advice will Jack Toronto give to Von Mining Company Ltd?
Step by step
Solved in 3 steps with 2 images
