Exotic Mango Farms Ltd. is considering whether to borrow funds and purchase a mango picking machine or lease the asset under an operating lease arrangement. The lease would be from the local leasing store with annual lease payments, payable at the beginning of each of the next 4 years (the time horizon for the analysis),of $11,000.

Asan alternative, the owner approached his bank to enquire about a loan to purchase the printing machine. The cost of the machine is$45,000and, at the end of4years, the market (salvage) value is estimated to be$10,000. The bank has informed him that they would charge9percent per year (payable annually, at the end of each year).

The equipment has a CCA rate of25percent. The benefits of any tax shields are realized at the end of each year. The company's tax rate is40percent. Bowden Printing's cost of capital is15percent.

Required:

a. Record your answers and use the space below to support those answers:

Discount Rate Used(use two decimals xx.xx)%Leasing OptionPresent Value of Leasing Option(enter as a negative number)Borrow to Purchase OptionCost of Machine$-45,000Present Value of Salvage(enter as a positive number)Present Value of CCA Tax Shield(enter as a positive number)Present Value of Borrow to Purchase Option(enter as a negative number)

b.Should Bowden Printing lease or borrow to purchase the machine?

• Lease
• Borrow to Purchase