Branard Industrial Equipment Corporation (BIEC) is in view of leasing the new Machine which requires, for...

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Branard Industrial Equipment Corporation (BIEC) is in view ofleasing the new Machine which requires, for $155,000 a year, whichis payable in advance. The cost of the Machine is $900,000 has aCost of Capital Allowance rate of 25% and will last for 72 months.The expected salvage value is $150,000. Assume that the firstCapital Cost Allowance tax deduction would be taken at the end ofthe first year. BIEC has lots of other Machine in this asset pool.The tax rate is 30% and the cost of debt is 7%. What is the maximumannual lease payment that would make BIEC indifferent betweenleasing or buying? (5 points)

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3.7 Ratings (370 Votes)

ANNUAL COST OF BUYING Cost of machine 900000 Year 1 2 3 4 5 6 A Book Value at Beginning of year 900000 675000 506250 379688 284766 213574 BA25 Depreciation 225000 168750 126563 94922 71191 53394 CAB Book Value at End of year 675000 See Answer

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Branard Industrial Equipment Corporation (BIEC) is in view ofleasing the new Machine which requires, for $155,000 a year, whichis payable in advance. The cost of the Machine is $900,000 has aCost of Capital Allowance rate of 25% and will last for 72 months.The expected salvage value is $150,000. Assume that the firstCapital Cost Allowance tax deduction would be taken at the end ofthe first year. BIEC has lots of other Machine in this asset pool.The tax rate is 30% and the cost of debt is 7%. What is the maximumannual lease payment that would make BIEC indifferent betweenleasing or buying? (5 points)