A travel company is considering obtaining a new boat for tours. It is expected to...
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A travel company is considering obtaining a new boat for tours. It is expected to cost 3,000,000, have a useful life of three years, and sold for 2,000,000 at that time. It will fall into a 25% CCA rate, the firm's tax rate is 40% and its cost of capital is 14%.
The boat builder is offering a lease (rent) alternative. What is the most the travel company would be willing to pay at the end of each of the three years, before tax, if it decided to lease the boat? The boat will be returned to the leasing company at that time. (You are calculating the pre-tax lease payment amount. Hint, calculate the net cost of ownership as a starting point).
a. 586,111
b. 976,851
c. 289,323
d. 1,000,000
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