Lease valuation using formulas

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Lease valuation using formulas. BigCo is considering leasing equipment that requires for $155,000 a year, payable in advance. The cost of the equipment is $900,000, has a CCA rate of 25% and will last for 6 years. The expected scrap value is $150,000. Assume that the 1st CCA tax deduction would be taken at the end of the 1st year. BigCo have lots of other equipment in the asset pool. The tax rate is 30% and the cost of debt is 7%. (L02, L03).

a) Should BigCo lease or buy the equipment?

b) What is the maximum lease payment that would make BigCo indifferent between leasing or buying

Please show all calculations

Reference no: EM131343215

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