Question
In: Finance
Orwell Futures has decided to acquire a travelling machine. Its cost is $75,000. In five years...
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Orwell Futures has decided to acquire a travelling machine. Its cost is $75,000. In five years it can be salvaged for $25,000. Friendly Loansharks has agreed to advance funds for the entire purchase price at 9 percent per annum payable in equal instalments at the end of each year over the five years. |
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As an alternative, the machine could be leased over the five years from the manufacturer, Ageless Ventures, with annual lease payments of $15,800 payable at the beginning of each year. |
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Orwell Futures’ tax rate is 25 percent. Its cost of capital is 15 percent, and its tax shields are realized at the end of the year. Travelling machines have a CCA rate of 30 percent. If the machine is owned, annual maintenance costs will be $750. |
| a-1. |
Calculate PV cost of lease alternative. (Do not round the intermediate calculations. Round the final answer to nearest whole dollar. Input the answer as positive value.) |
| PV cost | $ |
| a-2. |
Calculate PV cost of borrowing/ purchase alternative. (Do not round the intermediate calculations. Round the final answer to nearest whole dollar. Input the answer as positive value.) |
| PV cost | $ |
Solutions
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