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Prepare the four-year loan amortization schedule

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Question - Dairy Products Ltd. is trying to determine whether to lease or buy a new machine. The CCA rate for the machine is 40%. The cost is estimated to be $100,000, with annual payments (whether leasing or buying) of $28,859.15. The machine will either be leased or purchased outright with a loan. In either case, payments will start at the end of the year. The machine has an economic life of four years. The appropriate discount rate is 6% and the tax rate is 30%.

Required - Determine whether Dairy Products should lease the machine or buy it. Ignore the remaining UCC at the end of four years. Show all relevant calculations.

(a) Prepare the 4-year loan amortization schedule.

(b) Prepare the 4-year capital cost allowance schedule under the purchase option.

(c) Prepare the 4-year tax shield schedule for the purchase option.

(d) Prepare the after-tax net present value of the purchase option.

(e) Prepare the after-tax net present value of the lease option.

(f) Is leasing or purchasing better for Dairy Products.

Reference no: EM133101731

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