Suppose you are considering purchasing a machine or leasing one.  The machine has a full economic life of 15 years, and is depreciated linearly to zero.  There is no salvage value.  For the same machine, you can buy it for $200,000, or lease it for $13,942 per year.   Assume a tax rate of 27% and an after-tax cost of debt of 13%.  Show work for all parts requiring computation. What is the after-tax lease payment (annual)?               What is the depreciation tax shield (annual)?             What is the incremental cash flow in absolute value (annual)?             What is the net advantage to leasing?           Should you lease or buy the machine? Why?

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A:

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.