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It is time for the renewal of existing photocopying equipment at Runt Ltd. New equipment...

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Accounting

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It is time for the renewal of existing photocopying equipment at Runt Ltd. New equipment will cost $95,000 and this amount can be borrowed from the local bank at 7 percent interest with annual payments at the end of the year. The CCA rate on the equipment would be 20 percent. The equipment will be salvaged in 5 years for $24,000. The current equipment is worth $12,500. Runt could also lease the equipment with annual lease payments of $20,000 payable at the beginning of each year, which would avoid the annual maintenance expense of $1.250 involved if they purchase the equipment. Cost of capital is 14 percent. The tax rate is 40 percent. In this lease vs borrow to purchase problem: 1. The present value of the lease payments is: ($17,812)$92,257)$17,326)$15,849) 2. What is the present value of the tax-savings of lease payments? 58,324535,415517,326512,849 3. PV of maintenance payments is: 4. Pv of salvage value is: 5: PV CCA is

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