NHA Builders Inc, a US construction firm is debating whether to buy or lease a crane which is costing US$7.2 million from Tower Heights Limited. The useful life of the crane is 15 years, at which time the salvage value is put at US$200,000.The depreciation (CCA) rate for tax purposes is 30%, and the prevailing corporate tax rate is 40%.Further, the cost of borrowing to NHA Builders Inc. is 5%. Tower Heights Limited is willing to lease the crane for the entire fifteen years, accepting an annual lease payment of US$900,000 per annum, paid at the end of each year. Required: (i) Using appropriate computation, should NHA Builders Inc. buy or lease the crane?
NHA Builders Inc, a US construction firm is debating whether to buy or lease a crane which is costing US$7.2 million from Tower Heights Limited. The useful life of the crane is 15 years, at which time the salvage value is put at US$200,000.The depreciation (CCA) rate for tax purposes is 30%, and the prevailing corporate tax rate is 40%.Further, the cost of borrowing to NHA Builders Inc. is 5%. Tower Heights Limited is willing to lease the crane for the entire fifteen years, accepting an annual lease payment of US$900,000 per annum, paid at the end of each year. Required: (i) Using appropriate computation, should NHA Builders Inc. buy or lease the crane?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Kk.277.
NHA Builders Inc, a US construction firm is debating whether to buy or lease a crane which is costing US$7.2 million from Tower Heights Limited. The useful life of the crane is 15 years, at which time the salvage value is put at US$200,000.The
Tower Heights Limited is willing to lease the crane for the entire fifteen years, accepting an annual lease payment of US$900,000 per annum, paid at the end of each year.
Required:
(i) Using appropriate computation, should NHA Builders Inc. buy or lease the crane?
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