RSM333H1 Study Guide - Midterm Guide: Cash Conversion Cycle, Operating Lease, Mexican Peso
Document Summary
Financial or scientific calculator, 8. 5x11 inches, 1-sided aid sheet. Please answer questions on this exam paper - show all your work! 6 questions you must answer all the questions in full. Spafax canada, a magazine publisher, needs new equipment. It can purchase the equipment for ,000 in cash. The equipment will last for ive years and will be subject to a cca rate of 45%. The company expects a salvage value of zero at the end of the machine"s useful life. Alternaively, spafax can lease the equipment instead of purchasing it. The operaing lease contract will cost ,000 per year, however the lessor requires a minimum operaing lease term of seven years. The costs associated with operaing the machine are ,000 per year. Please recommend if spafax should lease or buy the equipment? (6 marks) Briely explain why a leasing the equipment is similar to issuing a bond (or assuming a ixed obligaion).
