Betty's Biscotti Company has decided to acquire a commercial convection oven. It will cost $15,000 and could be salvaged in 8 years for $5000 when the next expansion is likely. The Banc Farine has agreed to loan Betty the funds required at 12% payable in equal instalments at the end of each year of the 8 year term. Alternatively, Betty could lease the equipment over the 8 years from the manufacturer, CuisineFart (they are GAS ovens..ha ha..ok fine...can't blame me for trying to make you laugh) with annual payments of $3,500 payable at the start of each year of the contract. Betty's tax rate is 10%. Her cost of capital is 25% and tax shields are realized at the end of the year, as normal. 

Ovens, as equipment, Class 8, have a CCA rate of 20%. An OPTIONAL maintenance contract was available for purchase at the time of the oven purchase, with annual payments of $1,200 for each of the years of the asset's expected use, what would the present value of this addition be worth to Betty? 

A.$6,219 

B. some other number 

C.$3,595 

D.$5,598

Answer rating: 100% (QA)

ANSWER B some other number The present value formula is PVFV1in where you ... View the full answer