Brambles Inc is looking to acquire a new equipment for its project that will last for eight years. Theafter-tax required rate of return of the project is 16% per annum. Brambles can borrow at a before-taxinterest rate of 8.5% per annum and buy the equipment outright or lease the equipment from ABC'sLeasing. Brambles has evaluated the lease and decided to buy the equipment by borrowing since theNPV of lease is calculated to be -$12,000. However, the purchase cost of the equipment was under-estimated by $24,000, also the salvage value of the equipment at the end of the lease term was under-estimated by $8,000. The applicable corporate tax rate is 30% and the equipment is going to be fullydepreciated over the eight years using a straight-line method. Will Brambles' decision be affected byadjusting the purchasing cost and salvage value?O It is now indifferent between lease and borrow-to-buy.The equipment should still be purchased by borrowing.None of the other answers is correct.O The new equipment should not be acquired anymore due to the higher cost of equipment.The equipment should be leased since the new NPV of lease is now $14,873.31.

NPV stands for Net Present Value, which is a fundamental concept in finance and investment analysis.…

Answered: Brambles Inc is looking to acquire a…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 9P

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