Calculate the cash flows for each alternative, Cost Accounting

A company is evaluating the following lease or buy option.

A four year lease with annual payments of $25,000 payable at the beginning of the year.The tax shield is available at the end of the year.  The company's tax rate is 25% and company's cost of capital is 12%.  

The machine costs $85,000 has a four year useful life with no residual value.If financed the asset would be financed through a term loan at 10%.  The loan calls for equal payments to be made at the end of each year for four years.The machine would qualify for accelerated capital cost allowance written off on a straight line basis over two years.

Calculate the cash flows for each alternative.  Which alternative is the most attractive?

Posted Date: 3/13/2013 3:05:43 AM | Location : United States

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