QUESTION 3: Carmin Marbles Works (CMW) needs to expand its facilities. To do so, the company must acquire a polishing machine costing $100,000. The machine can be leased or purchased. The firm is in the 30% tax bracket and its before-tax cost of borrowing is 11% per annum. The terms of the lease and purchase plans are as follows: Lease: The leasing arrangement requires beginning-of-year payments of $30,000 over 4 years. Under this option, maintenance and insurance costs will be paid by the lessor. CMW intend to exercise its option to purchase the machine for $10,000 at the termination of the lease contract. Purchase: If the company purchases the machine, the installed cost of $100,000 will be financed with a 4-year bank loan, interest calculated on a yearly reducing balance, requiring equal end-of-year payments. The machine will be depreciated under MACRS using a three- year recovery period as follows: Yrl Yr2 Yr3 Yr4 Depreciation rates 33% 45% 15% 7% Carmin will pay $5,000 per year for the service contract that covers all maintenance costs, payment to be made at the end of the year. Annual insurance premium is estimated to be $1,500 paid in advance. The company plans to keep the machine at the end of the leasing contract. to Which alternative lease or purchase - would you recommend? [Total: 20 marks]