Cherry Pickings Farms Inc. is considering whether to borrow funds to purchase a machine for cherry picking 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 seven years of $$8,500.($Seven years is the time horizon for the analysis.$)$

As an alternative, the owner has approached his bank to enquire about a loan to purchase th cherry picking machine. The cost of the machine is $$54,000$ and, at the end of seven years, the market $($salvage$)$ value is estimated to be $$15,000.$ The bank has informed him that they would charge $9$ percent per year $($payable annually, at the end of each year$).$

The equipment has a CCA rate of $25$ percent. The benefits of any tax shields are realized the end of each year. The company's tax rate is $30$ percent. Cherry Pickings Farms Inc.$\text{'}$s of capital is $15$ percent.

lequired:

ather the key facts and compute the followings:

Present value of borrow$-$to$-$purchase

Present value of the lease alternative

Vhich alternative would you choose?

hy would you choose that alternative?