Block, Hirt, Danielson and Short: $12$ce

Problem $16-32($LO $6)$

Lease vs$.$ borrow to purchase analysis

Orwell Futures has decided to acquire a traveling machine. Its cost is $575,000.$ In mvc years it can be salvaged for $$25,000.$ Friendly Loansharks has agreed to advance funds for the entire purchase price at $9$ percent per annum payable in equal Installments at the end of each year aver the five years.

As an aternative, the machine could be leased over the five years from the manufacturer, Ageless Ventures, with annual least payments of $$15,800$ payable at the beginning of each year.

Onwell Futures? tax rate is $25$ percent. Its cost of capital is $15$ percent, and as tax shields are realized at the end ot the year. Traveling machines have a CCA rate of $30$ porcent. If the maching is owmed, annual maintenance costs will be $$750.$ Should Onwell Futures lease or buy its machine? Show all calculations.