BC Minerals Ltd must install $6 million of new machinery in its production system. The firm can obtain a bank loan for 100% for the purchase price, or it can lease the machinery. The machine falls into asset Class 30 with a declining balance of CCA rate Of 40%. The firm's tax rat is 35%. The loan would have an interest rate of 12%. The lease terms call for $1.5 million payments at the beginning of each of next 3 years. Assume that the firm has no use for the machine beyond the expiration of the lease. The machine has an estimated salvage value of $1.2 million at the end of the third year. Should the firm buy or lease the equipment? Show your calculations.

BC Minerals Ltd must install $6 million of new machinery in its production system. The firm can obtain a bank loan for 100% for the purchase price, or it can lease the machinery. The machine falls into asset Class 30 with a declining balance of CCA rate Of 40%. The firm's tax rat is 35%. The loan would have an interest rate of 12%. The lease terms call for $1.5 million payments at the beginning of each of next 3 years. Assume that the firm has no use for the machine beyond the expiration of the lease. The machine has an estimated salvage value of $1.2 million at the end of the third year. Should the firm buy or lease the equipment? Show your calculations.

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter19: Lease Financing

Section: Chapter Questions

Problem 6P: Big Sky Mining Company must install 1.5 million of new machinery in its Nevada mine. It can obtain a...

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