Fran's Business has two options:
(A) lease a $ 60,000 machine over a five-year period with an annual lease payment of $ 14,000;
(B) borrow $ 60,000 amount from the bank over the five-year period to buy the asset. The bank would charge a 9 % interest. Other financial assumptions are:
(a) the company's income tax rate is 30 %;
(b) the capital cost allowance for the equipment is 40 %;
(c) the equipment has no residual value; A. Calculations related to the five-year lease option:
-The annual before-tax annual lease payment is $________________ .

Question

Fran's Business has two options: 
(A) lease a $ 60,000 machine over a five-year period with an annual lease payment of $ 14,000; 
(B) borrow $ 60,000 amount from the bank over the five-year period to buy the asset. The bank would charge a 9 % interest. Other financial assumptions are: 
(a) the company's income tax rate is 30 %; 
(b) the capital cost allowance for the equipment is 40 %; 
(c) the equipment has no residual value; A. Calculations related to the five-year lease option:
-The annual before-tax annual lease payment is $________________ .

Quizplus · Accepted Answer

The Answer of Fran's Business has two options: 
(A) lease a $ 60,000 machine over a five-year period with an annual lease payment of $ 14,000; 
(B) borrow $ 60,000 amount from the bank over the five-year period to buy the asset. The bank would charge a 9 % interest. Other financial assumptions are: 
(a) the company's income tax rate is 30 %; 
(b) the capital cost allowance for the equipment is 40 %; 
(c) the equipment has no residual value; A. Calculations related to the five-year lease option:
-The annual before-tax annual lease payment is $________________ .

Fran's Business Has Two Options