1. It is time for the renewal of existing equipment at Spring Ltd. New equipment will cost $95,000 (this equipment has high risk of obsolescence) and this amount can be borrowed from the local bank at 7 percent interest with annual payments at the end of the year. Loan will include several restrictions, such as limit on dividends and bonus payments for Spring Ltd.

The CCA rate on the equipment would be 20 percent.

The equipment will be salvaged in 5 years for $24,000. The current equipment is worth $12,500. Spring could also lease the equipment with annual lease payments of $27,000 payable at the beginning of each year, which would avoid the annual maintenance expense of $2,500 involved if they purchase the equipment. Under this lease contract Spring company will be restricted of usage of this equipment to 2,500 hours per month.

1. Should Spring Ltd. Lease or borrow to purchase the equipment? Explain and include all calculations
2. Discuss 2 advantages and 2 disadvantages of lease instead of purchasing equipment with bank loan