Evergreen Incs most recent Statement of Financial Position is given below.

Additional Information:

• Current market price per common share = $ 195
• Before tax cost of borrowing (secured loan) = 5%
• Weighted Average Cost of Capital =12%
• Net Income for 2021 = $925,000
• Target D/E ratio based on market values = 0.25
• Corporate tax rate = 35%

1. One of the projects Evergreen is considering involves purchasing a new piece of manufacturing equipment. The capital budgeting analysis indicates that the equipment has a positive NPV of $500,000. The required initial investment in working capital for the project amounts to $50,000 payable at the beginning of the year and is growing at 10% annually over the life of the project. The equipment costs $1,400,000 to purchase, has a five-year useful economic life, and is a class 10 asset which has a CCA rate of 30% (assume half year rule applies). The salvage value of the equipment is $350,000 at the end of the five-year period. The equipment can be leased from Acel Leasing for five years for $300,000 per year, with the first payment payable at the beginning of the year. If Evergreen purchases the equipment, it will have annual operating costs of $50,000 per year. Under the terms of the lease, Acel will be responsible for the operating costs. Assume that the lease is a tax lease (qualified by the CRA for tax purposes). Calculate the Net Advantage to Leasing and explain whether the firm should buy or lease the asset. (17 marks)
2. Calculate the maximum annual lease payment Evergreen would be willing to make. (5 Marks)

Evergreen Inc. Statement of Financial Position As at Dec 31, 2021 Assets Cash $ Accounts Receivable $ Inventories $ Total Current Assets $ Net Fixed Assets $ Liabilities Accounts Payable Other Current Liabilities Total Current Liabilities 425,000 400,000 500,000 1,325,000 18.000.000 $ $ $ 300,000 425,000 725,000 MM LT Debt Common Stock (85,000 shares o/s) Retained Earnings $ $ $ $ 2,500,000 4,500,000 11,600,000 ! Total Liabilities & Owners Equity Total Assets $ 19,325,000 $ 19,325,000 Evergreen Inc. Statement of Financial Position As at Dec 31, 2021 Assets Cash $ Accounts Receivable $ Inventories $ Total Current Assets $ Net Fixed Assets $ Liabilities Accounts Payable Other Current Liabilities Total Current Liabilities 425,000 400,000 500,000 1,325,000 18.000.000 $ $ $ 300,000 425,000 725,000 MM LT Debt Common Stock (85,000 shares o/s) Retained Earnings $ $ $ $ 2,500,000 4,500,000 11,600,000 ! Total Liabilities & Owners Equity Total Assets $ 19,325,000 $ 19,325,000