Automated packing machine for factory

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In order to buy an automated packing machine for your factory, the cost would be $150,000. You have inquired at the bank about borrowing that amount and the bank would charge you a rate of 9.5 percent on the loan. The packing machine would be used for 10 years, at the end of which it would have no salvage value. It falls in an asset class with an allowable CCA rate of 10 percent per year. Use of the machine would reduce before-tax costs by $30,000 per year over its life. You also have the ability to lease the packing machine from the manufacturer for lease payments of $25,000 per year (due at the beginning of each year). Your firm's tax rate is 35 percent. Assuming that you will obtain the new packing machine in some way, should you lease or buy it?

Reference no: EM132577896

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