#6. Deep Lake Drilling (DLD) is considering the purchase of a new floating drill at a cost of $800,000. The equipment has a useful life of 4 years and qualifies for a 30% CCA rate. DLD has a tax rate of 25% and it can borrow at 7%. DLD can lease the equipment from Reliable Leasing Company (RLC). The lease payments will be $215,000 per year to be paid at the beginning of the year. Suggestion: For each of Parts (a), (b), (c), and (d), try to use a table similar to the one below after adding or deleting rows or columns as desirable. Show all math.

A. Assume that the asset class will not be discontinued at the end of Year 4 (beginning of Year 5) and that the UCC will continue for a long time. Also assume that the tax breaks from the lease payments are realized at the beginning of the year in which they are paid. Excluding the loss of tax breaks on the CCA, what are the incremental cash flows for this scenario? (5 marks)

B. Assume that the asset class will not be discontinued at the end of Year 4 (beginning of Year 5) and that the UCC will continue for a long time. Also assume that the tax breaks from the lease payments are realized at the beginning of the year in which they are paid. What is the NAL for DLD under this scenario? (6 marks)