Asked by
Mahsa Tahmasebi
on Dec 08, 2024
Verified
Burton Enterprises is trying to determine if leasing would be a better alternative than purchasing $61,000 of new equipment. The equipment has a 4-year life after which time it will be worthless. The equipment belongs in a 20 percent CCA class and can be leased for $16,000 a year. The firm can borrow money at 7.25 percent and has a 35 percent tax rate. What is the incremental annual cash flow for year 2 if the company decides to lease the equipment rather than purchase it?
A) -$28,020
B) -$20,868
C) -$14,243
D) -$11,667
E) -$9,564
CCA Class
In the context of Canadian taxation, a method to categorize depreciable property according to its class for the purpose of determining capital cost allowance rates.
Incremental Cash Flow
The additional cash flow a company receives from taking on a new project, considering both the inflows and outflows caused by the project.
Tax Rate
The percentage at which an individual or corporation is taxed; can refer to the nominal rate (before any deductions) or effective rate (after deductions).
- Examine the effects of choosing between leasing and purchasing on a company's cash flows with specified financial metrics.
- Calculate the net expenses or financial benefits of leasing equipment after considering tax deductions and lease expenditures.
Verified Answer
ME
Learning Objectives
- Examine the effects of choosing between leasing and purchasing on a company's cash flows with specified financial metrics.
- Calculate the net expenses or financial benefits of leasing equipment after considering tax deductions and lease expenditures.