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DogChew Products needs to replace its rawhide tanning and molding equipment. It can be used for five years and will have no salvage value. The equipment costs $930,000. The firm can lease it for $245,000 a year, or it can borrow the money to purchase the equipment at 9%. The firm's tax rate is 39%. The CCA rate is 20% (Class 8) . Assume your company will not pay taxes for the next five years. Now what is the net advantage to leasing?
A) -$108,731
B) -$88,132
C) -$2,837
D) $138,706
E) $152,062
CCA Rate
The Capital Cost Allowance (CCA) rate refers to the percentage rate at which a business can claim depreciation on certain property types for tax purposes in Canada.
Net Advantage to Leasing
This is a calculation used to determine if leasing an asset is a more cost-effective option than purchasing it outright, taking into account all the costs and benefits associated with leasing.
Straight-Line Depreciation
A method of allocating the cost of a tangible asset over its useful life in an even manner.
- Derive the Net Advantage to Leasing (NAL) and explore its importance for decisions in finance.
- Investigate financial maneuvers by reflecting on premises regarding taxation condition and depreciation approaches.
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Learning Objectives
- Derive the Net Advantage to Leasing (NAL) and explore its importance for decisions in finance.
- Investigate financial maneuvers by reflecting on premises regarding taxation condition and depreciation approaches.
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