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Assignment Details:

  • Referencing Styles: Not Selected
  • Words: 1000
  • Course Code: CORPFIN 3500
  • Course Title: Corporate Finance Theory
  • University: The University of Adelaide
  • Country: AU


Question One 

Engineering One Limited will either purchase or lease a new $756,000 fabricator. If purchased, the fabricator will be depreciated on a straight-line basis over seven years. Engineering One Limited can lease the fabricator for $130,000 per year for seven years payable at the beginning of the period.  Engineering One Limited has a tax rate of 35% and has a borrowing rate of 7% pre-tax.



  1. What are the cash flow consequences of leasing the fabricator?
  2. What are the cash flow consequences of buying the fabricator?
  3. What are the incremental cash flows of leasing versus buying the fabricator?
  4. Briefly discuss what would be the balance sheet consequences if this were classified as an operating lease? As a finance lease?