The Jamey Corporation is considering the purchase of a new dye spreading machine

| November 9, 2018

The Jamey Corporation is considering the purchase of a new dye spreading machine for its manufacturing operations and is faced with two possibilities:• Machine A is available only on a lease basis. The annual lease payments are $2,500 for five years. This machine will save the Jamey Corporation $7,000 a year through reductions in electricity costs in each of the five years.• As an alternative, Jamey can purchase a more energy efficient machine (Machine B) for $15,000. This machine will save $9,000 in electricity costs. Jamey’s bank has offered to finance the machine with a $15,000 loan. The interest rate on the loan will be 8% on the remaining balance with five annual principal payments of $3,000.The tax rate is 40% and the CCA rate for the machine is 30%. Both machines have a useful life of five years and no salvage value. Should Jamey lease the Machine A or purchase the more efficient Machine B?

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