.Fairview Medical Labs needs a new ultrasound costing $2,600,000, which it plans on using for 10 years. After 10 years, it will have a residual value of $0. The asset qualifies for a CCA rate of 20%. The ultrasound will need annual calibration and servicing at a cost of $10,000 at the end of each year. If leased, 10 annual lease payments of $420,000 payable in advance are required. The lease includes the cost of annual calibration and servicing. Fairview has a tax rate of 40%, a WACC rate of 12%, and its interest rate on any borrowing is 10%. Should Fairview buy or lease this machine?

1 What is the discount rate to beused in the analysis: Answer %

2

What is the NPV of the Cost of Leasing: $ Answer

3If the equipment is Purchased: What is the Cash Flow at T₀? $ Answer

4

What is the PV of the annual costs? $ Answer

5

What is the PV of the CCA Tax Shield? $ Answer

6

What is the NPV of the Cost of Purchasing? $ Answer

7Should Fairview Lease or Purchase?

Select one:

a. Lease

b. Purchase