Asked by
khurram shafique
on Dec 08, 2024
Verified
PonchoParts, Inc. manufactures reproduction parts for classic cars. The firm needs a computer-operated turret lathe that costs $440,000. It can borrow at 9.5%. The lathe will be used for five years, after which it will have a salvage value of $50,000. Enterprising Leasing, Inc. will lease the equipment to the firm for $100,000 per year. The firm's tax rate is 34%. If the lathe belongs in a 30% CCA class, what is the net advantage to leasing (NAL) ?
A) -$3,379
B) -$1,130
C) $105
D) $3,563
E) $8,235
Computer-Operated Turret Lathe
A type of lathe controlled by a computer, allowing for precise cuts and automation in manufacturing processes.
CCA Class
In tax policy, refers to a category used in Capital Cost Allowance determinations to group assets with similar useful lives for depreciation purposes.
- Ascertain the net leasing advantage (NAL) for different assets by considering tax implications, depreciation estimates, interest rates, and lease payment obligations.
- Acknowledge the contribution of tax shields in decisions related to leasing versus buying, notably in terms of depreciation and Capital Cost Allowance (CCA).
Verified Answer
AC
Learning Objectives
- Ascertain the net leasing advantage (NAL) for different assets by considering tax implications, depreciation estimates, interest rates, and lease payment obligations.
- Acknowledge the contribution of tax shields in decisions related to leasing versus buying, notably in terms of depreciation and Capital Cost Allowance (CCA).
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