MCC Manufacturing Ltd 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 Its expected useful life is 7 years, at which point the machine will have a salvage value of $100,000 The machinery falls into asset class 8, which has a CCA rate of 20 and MCC's tax rate is 35 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 MCC leases this asset, the lessor will pay for the maintenance costs MCC's before tax cost of borrowing is 10 and its weighted average cost of capital (WACC) is 15 The proposed annual lease payments in advance are $135,000 for 7 years Required Determine if MCC Manufacturing should lease or purchase the machine (10 marks) Problem 3 (12 Marks) MCC Manufacturing Ltd 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 Its expected useful life is 7 years, at which point the machine will have a salvage value of $100,000 The machinery falls into asset class 8, which has a CCA rate of 20 and MCC's tax rate is 35 Annual operating costs to run the machine are estimated to be $80,000, including 515,000 per year in maintenance costs assume end of year cash flows If MCC leases this asset, the lessor will pay for the maintenance costs MCC's beforetax cost of borrowing is 10 and its weighted average cost of capital (WACC) is 15 The proposed annual lease payments in advance are $135,000 for 7 years Required a Determine if MCC Manufacturing should lease or purchase the machine 10 marks)

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MCC Manufacturing Ltd. has decided to acquire a new piece of machinery in order to improve production.The company does not know whether it should purchase

MCC Manufacturing Ltd. 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.Its expected useful life is 7 years, at which point the machine will have a salvage value of $100,000.The machinery falls into asset class 8, which has a CCA rate of 20% and MCC's tax rate is 35%.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 MCC leases this asset, the lessor will pay for the maintenance costs.MCC's before-tax cost of borrowing is 10% and its weighted average cost of capital (WACC) is 15%.The proposed annual lease payments in advance are $135,000 for 7 years.

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Determine if MCC Manufacturing should lease or purchase the machine. (10 marks)

Problem 3 (12 Marks) MCC Manufacturing Ltd. 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. Its expected useful life is 7 years, at which point the machine will have a salvage value of $100,000. The machinery falls into asset class 8, which has a CCA rate of 20% and MCC's tax rate is 35%. Annual operating costs to run the machine are estimated to be $80,000, including 515,000 per year in maintenance costs [assume end of year cash flows]. If MCC leases this asset, the lessor will pay for the maintenance costs. MCC's beforetax cost of borrowing is 10% and its weighted average cost of capital (WACC) is 15%. The proposed annual lease payments in advance are $135,000 for 7 years. Required: a. Determine if MCC Manufacturing should lease or purchase the machine. [10 marks)