Assume straight-line depreciation with zero salvage value

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Reference no: EM131556794

A manufacturing comapny wants to acquire a new closed circuit TV (CCTV) system. The new system CCTV system can be purchased or it can be leased from the building in which the company has recently moved. If purchased the system will cost $87,500 and will have useful life of 5 years with no market value at that time. The annual opening cost is expected to be $52,000 per year. To lease the system the company must pay a non refundable deposit of $21,200 an end-of-year leasing fee of $20,000. and an additional annual inspection and maintenance cost of $1000. Additionally the operational cost incurred by the company will reduced to $3400 per year. The company's after tax MARR is 10% per year and effective income tax rate is 36% per year. Determine whether the company should purchased or leased the CCTV system. Assume straight-line depreciation with zero salvage value and study period of 5 years.

Reference no: EM131556794

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