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# Consider data in problem 18-1 (see below). Assume that Reynolds tax rate is 40% and that the equipment's depreciation would be \$100 per year.

This question was answered on Sep 01, 2011. View the Answer
Consider data in problem 18-1 (see below). Assume that Reynolds tax rate is 40% and that the equipment's depreciation would be \$100 per year. If the company leased the asset on a 2-year lease, the payment would be \$110 at the beginning of each year. If Reynolds borrowed and bought, the bank would charge 10% interest on the loan. In either case, the equipment is worth nothing after 2 years and will be discarded.
Should Reynolds lease or buy the equipment?

Data from 18-1
Current Assets - \$300 Debt - \$400
Net fixed assets - \$500 Equity - \$400
Total Assets - \$800 Total Claims - \$800

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Dear Student Please find... View the full answer

Cash flows from Buying of the asset
Income Statement
Particulars/Year
Interest (1)
Depreciation (2)
PBT (3)=-(1)-(2)
Tax (4) = (3)*40%
PAT (5)=(3)-(4)
Cash flow from Operating activities...

## This question was asked on Aug 31, 2011 and answered on Sep 01, 2011.

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