Orwell Futures has decided to acquire a traveling machine. Its cost is $75,000. In five years it can be salvaged for $25,000. Friendly Loansharks has agreed to advance funds for the entire purchase price at 9 percent per annum payable in equal installments at the end of each year over the five years. As an alternative, the machine could be leased over the five years from the manufacturer, Ageless Ventures, with annual least payments of $15,800 payable at the beginning of each year, Orwell Futures tax rate is 25 percent. Its cost of capital is 15 percent, and its tax shields are realized at the end of the year. Traveling machines have a CCA rate of 30 percent. If the machine is owned, annual maintenance costs will be $750. Should Orwell Futures lease or buy its machine? Show all calculations. 5 years $15,800 Purchase cost Economic life Salvage value Cost of debt Tax rate Annual maintenance CCA rate $75,000 5 years $25,000 9% 25% $750 30% Lease term Payment Annuity due (BGN) Cost of capital 15.0% Discount rate: (after tax cost of debt) Borrow to purchase option: PV of annual loan payments and tax savings from interest expense. Initial cost Present value of salvage Tax shield from CCA PV of annual maintenance pymt NPV (net present value) Lease option: Present value of payments PV of tax savings on payments NPV (net present value)