DogChew Products Needs to Replace Its Rawhide Tanning and Molding

question 247

Multiple Choice

DogChew Products needs to replace its rawhide tanning and molding equipment. It can be used for five years and will have no salvage value. The equipment costs $930,000. The firm can lease it for $245,000 a year, or it can borrow the money to purchase the equipment at 9%. The firm's tax rate is 39%. The CCA rate is 20% (Class 8) .

Assume your company will not pay taxes for the next five years. Now what is the net advantage to leasing?

• A) -$108,731
• B) -$88,132
• C) -$2,837
• D) $138,706
• E) $152,062

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Definitions:

First Agreement Arbitration

A dispute resolution process agreed upon as the first step in addressing conflicts before seeking litigation, emphasizing an agreement's prior establishment.

Third Party Intervention

The involvement of an external party in a dispute or negotiation to assist in reaching a resolution or agreement.

Bargaining in Good Faith

The duty of parties to a negotiation to communicate honestly and seriously with the intention to reach an agreement.

Incremental Sales Revenue

Additional revenue generated from sales activity above a previously established base level.