TJ & Parents Inc. has recently decided to go ahead with a new operating system for their business. The cost of the operating system is $3,500,000 and is estimated to have a salvage value of $400,000 in seven years. The CCA rate for the new system is 23% and they will have other assets in this class for at least the next ten years. TJ & Parents Inc. can borrow from the bank at 9% and their current WACC is 12%. They have been offered to lease the new operating system with annual lease payments of $700,000, made at the beginning of each year for seven years. TJ & Parents Inc. marginal tax rate is 26%. Required Should TJ & Parents Inc. buy or lease the new operating system? Show all calculations and round all ending figures to the nearest dollar.

TJ & Parents Inc. has recently decided to go ahead with a new operating system for their business. The cost of the operating system is $3,500,000 and is estimated to have a salvage value of $400,000 in seven years. The CCA rate for the new system is 23% and they will have other assets in this class for at least the next ten years. TJ & Parents Inc. can borrow from the bank at 9% and their current WACC is 12%. They have been offered to lease the new operating system with annual lease payments of $700,000, made at the beginning of each year for seven years. TJ & Parents Inc. marginal tax rate is 26%. Required Should TJ & Parents Inc. buy or lease the new operating system? Show all calculations and round all ending figures to the nearest dollar.

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Description: TJ & Parents Inc. has recently decided to go ahead with a new operating system for their business. The cost ofthe operating system is $3,500,000 and is estimated to have a salvage value of $400,000 in seven years. TheCCA rate for the new system is 2

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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