Luigi's pizza emporium is considering whether to lease or purchase a new state of the art wood

fired pizza oven from Italy. The cost of the pizza oven will be $275,000 and has a useful life of 15

years. Luigi expects to retire in 10 years at which time he believes he can sell the oven for

$50,000. Luigi has contacted a local financial institution and they have agreed to lend Luigi the

funds to purchase at a rate of 9% with annual payments amortized over eight years.

Alternatively, Luigi could lease the equipment from the manufacturer with lease payments of

$40,000 per year for 8 years. The first payment will be due immediately upon delivery of the

equipment.

if the equipment is purchased the vendor will perform an annual maintenance on the oven at a

cost of $3,000 per year.

Luigi's Pizza has a cost of capital of 12% and a tax rate of 30%. Pizza ovens have a CCA rate of 259

Required:

Should Luigi's pizza lease or borrow to purchase the equipment? Show all calculations.