Only accept hand-written assignment. Use pen and paper, ipad or tablet, save as pdf file and upload. After uploading your assignment, download and open it to make sure that the file is not corrupted. Please keep at least 2 decimal points for dollar amounts and at least 4 significant digits for rates.

Question 3

DIY accepts a 7-year project that requires a special machine. The new machine costs $25,000 and has CCA rate of 25%. The salvage value is $3,000 at the end of year 7. DIY does not have any other assets in the asset class. Its cost of debt is 10% and tax rate is 20%. Besides buying the machine, DIY can lease it from ATS leasing company with seven annual lease payments of $4,800. ATS has many assets in the asset class and the UCC is always positive. Its cost of debt and tax rate are 8% and 30% respectively.

a) Calculate the NPV of leasing for DIY.

b) What is the maximum annual lease payment that is acceptable to DIY?

c) Calculate the NPV of leasing for ATS.

d) What is the minimum annual lease payment that is acceptable to ATS?