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Anderson plans to acquire an automated assembly line with ten year life at a cost of...

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Finance

  1. Anderson plans to acquire an automated assembly line with tenyear life at a cost of sh 10 million, delivered and installed. Heplans to use the equipment for only five years.He can borrow therequired 10 million at a before cost of 10%.The estimated scrapvalue is sh 50,000 after ten years, but its estimated scrap valueafter five years is sh 1 million. He can lease the equipment for 5years at a rental charge of sh 2.75m payable at the beginning ofeach year. The lessor will maintain the equipment. However if hebuys he will bear the cost of maintenance of shs500,000 per yearpayable at the beginning of the year.The marginal tax rate is30%

          Analyzewhether the company should purchase or lease the asset

PS: please have another expert try it. it had been done earlier,same exact question but was locked out. .Thanks!

Answer & Explanation Solved by verified expert
4.4 Ratings (677 Votes)
AnswerCompany should lease the assetNPVs of both options    See Answer
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