Tough Rock Ltd. needs to acquire a piece of drilling equipment which will cost the company $55,000. It is estimated that in 14 years time the machine can be salvaged for $5,500. The companys bank has agreed to advance funds for the entire purchase price at 6 percent per annum payable in equal installments over the 14 years. Alternatively, the machine could be leased over the 14 years from the manufacturer, by way of an operating lease with annual lease payments of $4,250. The companys tax rate is 25 percent, and its cost of capital is 12 percent. The equipment has a CCA rate of 20 percent. If the machine is owned, annual maintenance costs will be $550.

Required: Advise the company which alternative they should choose, providing them with calculations to support your recommendation.