Floki's Shipbuilding Company has decided to acquire a new piece of machinery in order to improve production. The company does not know whether it should purchase or lease the machinery. The initial cost of the machinery is $750,000. The contract call for yearly lease payments of $110,000 for seven years. After seven years, the machine will have a residual value of $100,000. The machinery falls qualifies for a CCA rate of 20% and Floki’s tax rate is 31%. Annual operating costs to run the machine are estimated to be $80,000, including $15,000 per year in maintenance costs (assume end of year cash flows). If Floki leases this asset, the lessor will pay for the maintenance costs. Floki’s before-tax cost of borrowing is 10% and its weighted average cost of capital is 15%.

The proposed annual lease payments in advance are $135,000 for seven years. Should Floki's Shipbuilding lease or purchase the machine? Show your work.

Floki's Shipbuilding Company Income Statement
For the Period (Millions USD)	2020
Revenue	270
Cost Of Goods Sold	154
Gross Profit	116
Selling General & Admin Exp.	74
Depreciation & Amort.	11
Operating Income	32
Interest Expense	6
Earnings Before Tax	26
Income Tax Expense	8
Net Income	18
Per Share Items
EPS	0.40
Common Shares Outstanding	44.1
Dividends per Share	$0.15
Payout Ratio %	36.9%
Floki's Shipbuilding Company
Balance Sheet (Millions USD)	2020
ASSETS
Cash And Equivalents	-
Accounts Receivable	21
Inventory	120
Prepaid Exp.	4
Total Current Assets	145
Gross Property, Plant & Equipment	244
Accumulated Depreciation	(86)
Net Property, Plant & Equipment	158
Other long term operating assets	52
Total Assets	355
LIABILITIES
Accounts Payable	26
Accrued Exp.	-
Short-Term Debt	37
Other Current Liabilities	14
Total Current Liabilities	76
Long-Term Debt (Par value)	70
Other Non-Current Liabilities	29
Total Liabilities	176
Total Equity	179
Total Liabilities And Equity	355