Transcribed Image Text
TheLavish Carpet Manufacturing Co. has decided acquire a new machinethat has an economic life of 10 years, with no residual value. Themachine can be purchased for $75,000, and the supplier is willingto advance $45,000 of the purchase price at 12 percent. The loan isto be repaid in equal instalments over 10 years. Lavish Carpet pays40 percent corporate income tax and can claim 20 percent capitalcost allowances on the purchased asset. It expects to negotiate afurther $30,000, 10-year loan with a financial institution at 14percent interest, thereby financing any purchase entirely throughdebt. Meanwhile, Midland Leasing Ltd has also offered make theequipment available under a 10 year financial lease. Lease paymentsof $11,200 are to be paid at the end of each year. How should theasset be acquired?