The Halifax Transport Co$.($HTC$)$ has decided that it needs ten new modern buses with the

most sophisticated equipment such as refrigerator, air conditioner, toilet, and so forth. The

need for these buses was discovered in a survey of customers which was done by a

marketing research firm. The buses that are being considered are made by a Canadian

manufacturer, General Motors Canada $($GMC$),$ and cost $$200,000$ each for a total of $$2$

million. To obtain these buses, two alternative financial arrangements are available to HTC$.$

$1.$ It can use the facilities of the Bank of Montreal for a term loan of five years at the

interest rate of $20\%.$ If the company is to take this loan and pay cash to the

manufacturer, the list price will be cut by $10\%,$ to $$180,000$ per bus.

$2.$ The Canadian manufacturers can also act as a lessor and offer a five$-$year lease to HTC

so that HTC can obtain uses of Buses without purchasing them. The arrangement calls

for HTC to pay $$500,000$ at the beginning of each year for five years. If the company

$2$

is to take this option, the Lease Promoting Agency $($LPA$),$ a government organization

that promotes leasing contracts, will pay the HTC $$160,000$ at the end of year $5.$

Because of the special circumstances surrounding this case, the investment can be

depreciated for tax purposes at a $50\%$ declining rate $($that is$,$ exceptionally, the CCA

rate is $50\%$ instead of the usual $30\%$ for cars$).$ The capital cost of the buses will be

added to the existing CCA pool of HTC$.$ Because of the heavy usage, the buses will

only be good for scrap after five years. The scrap value is estimated to be $$12,000$ per

bus for a total of $$120,000.$ HTC will not pay tax for the foreseeable future but the

manufacturer's tax rate is $50\%.$

$($a$)$ Should HTC buy or lease the buses? Show your work.

$($b$)$ What is the NPVlease for the manufacturer?

$($c$)$ What is the maximum lease payment that HTC is willing to pay?

$($d$)$ What is the minimum lease payment that GMC is willing to accept?