Leasing(10 Points)

Corporation (BIEC) is in view of leasing the new Machine which requires, for $155,000 a year, which is payable in advance. The cost of the Machine is $900,000 has a Cost of Capital Allowance rate of 25% and will last for 72 months. The expected salvage value is $150,000. Assume that the first Capital Cost Allowance tax deduction would be taken at the end of the first year. BIEC has lots of other Machine in this asset pool. The tax rate is 30% and the cost of debt is 7%.

Required:

a.Should Branard Industrial Equipment Corporation (BIEC) lease or buy the Machine

assuming asset pool remains open?(

b.What is the maximum annual lease payment that would make BIEC indifferent

between leasing or buying?