1) Tims Lawn Care (TLC) is looking at expanding its business.

They hope to buy 5 lawnmowers this year, and sell them for scrap at $50 each in 6 years. The mowers will cost $1,100 each to buy. It is hoped that each summer a mower will produce an EBITDA of $1,000 (for 6 years). No changes in NWC accounts are expected. Tax rate is 30%, CCA rate on the mowers will be 20%, and TLC requires a 15% return. If the mowers were purchased, TLC would finance the purchase with a loan from the bank paying 9%.

a) Calculate the NPV and IRR of this project. Should TLC proceed with the investment?

b) Alternatively, instead of buying the lawn mowers TLC is offered to lease each mower at a cost of $300 per year for 6 years. If TLC decides to go through with the expansion, should it lease or buy the mowers?