1. The XYZ Co. has decided to acquire a new machine. If purchased, the machine will cost $2,400,000 and will be depreciated (CCA) at a 30% rate. The tax rate is 35% and XYZ can borrow at 9%. If leased the lease payments will be $560,000 per year payable in advance for 5 years. The firms WACC is 15%. Salvage value is zero. Assume the company has many assets in the CCA class.

1. Should the machine be leased?

2. Does your answer in a) change if there is a salvage value of $200,000?