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What are the equivalent loan and npv of the lease

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Reference no: EM132494931

ACME Inc. Is evaluating a lease for a new $130,000 backhoe.

Seven annual lease payments of $22,000 are due in advance. ACME Inc. has a tax rate of 26%. If it purchases the backhoe, it will be in its own 20% CCA class. The half-year rule applies, the first CCA deduction is take in year 0, and after 7 years the backhoe is worthless. The interest rate for ACME Inc. is 11%.

i) Determine the cash flows of leasing rather than purchasing the forklift for each of the seven years.

II) What are the equivalent loan and NPV of the lease?

Reference no: EM132494931

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