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ABC company is considering buying a machine that costs $350,000. The company can finance the purchase...

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Finance

ABC company is considering buying a machine that costs $350,000.The company can finance the purchase with a bank loan at 8%, withequal annual instalments over 10 years. The machine would have asalvage value of $25,000 at the end of 10 years. Alternatively, themachine could be leased, with 10 equal annual payments of $50,000,starting today. ABC's tax rate is 35%. The machine belongs to a CCApool depreciating at 20%. ABC's cost of capital is 11%. Theappropriate discount rate is: 5.2% 8% 7.15% 11%

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ALTERNATIVE1 BUYING WITH BANK FINACELoan amount350000Interest Rate8Present Value PV of Cash FlowCash Flow1iNiDiscount RateNYear of Cash FlowNYear012345678910PPMTPrincipal payment using excel PPMT function with Rate8PerNNper10 Pv35000024160260932818130435328703549938339414074471948297IPMTInterestpayment using excel    See Answer
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ABC company is considering buying a machine that costs $350,000.The company can finance the purchase with a bank loan at 8%, withequal annual instalments over 10 years. The machine would have asalvage value of $25,000 at the end of 10 years. Alternatively, themachine could be leased, with 10 equal annual payments of $50,000,starting today. ABC's tax rate is 35%. The machine belongs to a CCApool depreciating at 20%. ABC's cost of capital is 11%. Theappropriate discount rate is: 5.2% 8% 7.15% 11%

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