DogChew Products Needs to Replace Its Rawhide Tanning and Molding

question 137

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:

Financial Statements

Formal records of the financial activities and position of a business, individual, or other entity, including the balance sheet, income statement, and statement of cash flows.

Operating Activities

The portion of a company's business activities that are related to its main operations, such as selling products or offering services.

Cash Flow Statement

A report detailing the impact of variations in balance sheet figures and income on cash and cash equivalents, segmented into operations, investments, and finance-related actions.

Dividend Payments

Dividend payments are the distribution of a portion of a company's earnings, decided by the board of directors, to its shareholders.