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Question(s) / Instruction(s):

Anderson will be acquiring assembly line equipment with a 10-year life at a cost of $10 million; the equipment will be used for only 5 years and then discontinued. They can borrow on a simple interest loan at 10%. The equipment’s estimated salvage value after five years is $2 million. Anderson can lease the asset for five years at $2.6 million per year, payable at the beginning of each year. The contract stipulates the lessor will maintain the equipment at no charge to Anderson; however, if Anderson buys the equipment, then it will bear the cost of maintenance which will be set by contract at $500,000 per year, payable at the beginning of each year. The equipment falls under the MACRS 5-year class life, and Anderson’s tax rate is 35%

 

 

Required:

Evaluate that whether the Anderson & Company should buy or lease the automated assembly line equipment.

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  1. Got it! Thanks a lot

    Posted by Trixie on 1st Feb 2014

    Got it! Thanks a lot again for henpilg me out!



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