Cameron Caans Corporation is debating whether to acquire an asset through an operating lease arrangement or to borrow funds and purchase the asset . The purchase price of the asset , $ 125,000 can be financed with a five - year , 8 % bank loan . If purchased , the asset will be placed in a CCA class of 20 % with an expected salvage of $ 7,000 , at the end of its five - year life . Annual before tax costs of service and repair are estimated at under the purchase option . Alternatively , the firm can obtain the use of the asset with an operating lease of five years . The lease payments would be $ 31,000 per year .

The firm's tax rate is 30 % and its cost of capital is 14 % . Lease payments are to be paid at the beginning of each year .

Which alternative should be selected based on minimizing the present value of aftertax costs ?

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