This case is asking if we should lease or buy a piece of equipment to be installed in Baldwins plant. In order to perform this analysis, we use a table in order to compare what will be more beneficial for Baldwin. With the information given in the case, you will be able to determine if Baldwin should buy or lease this piece of equipment worth $300,000. Information provided:

Lease payments per year for 10 years = $45,000 before tax

Income tax rate = 50% Cost of asset = $300,000 financed over 10 years

Interest rate = 10%

Capital Cost Allowance (CCA) rate = 25%

What I am looking for is to provide me with four (4) scenarios (i.e., four sensitivity analysis tables). The sensitivity analysis for all four points below is based on the same format as Table 8.5 from the textbook (7th Edition).

Base case: based on information provided above (and main body of the case). Should Baldwin Lease or Buy?

Case 2: what happens if CCA is 40% instead of 25%. Should Baldwin Lease or Buy?

Case 3: what happens if interest is 8% instead of 10%. Should Baldwin Lease or Buy?

Case 4: salvage value of $50,000 in the tenth year. Should Baldwin Lease or Buy? Please note: change only one value for each scenario For example: when you calculate the interest rate change, the CCA goes back to the base case. The last column Net Advantage (Disadvantage) versus Lease provides the answer whether Baldwin should buy or lease. However, you should state which option lease or buy is best and by how much.

Textbook Table 8.5

Table 8.5 Comparison of Cost of Owning versus Cost of Leasing