White River Minerals must install $5,600,000 of new machinery in its Ontario mine. It can finance the equipment purchase by either leasing or taking out a bank loan. The finance department will use the following information in analyzing his decision.

• Maintenance and insurance is $45,000 per year.
• The machine is expected to result in of cost savings of $250,000 per year.
• Lease terms: $1,500,000 per year for a 4-year lease.
• The machine is expected to have no use to White River Minerals beyond the life of the lease. The machine is expected to have a residual value of $750,000 at the end of the lease.
• The machine falls into asset Class 38 and has a CCA rate of 30%.
• The firms tax rate is 26%.
• The fixed interest rate on the loan is 10%,

QUESTIONS:

1. Calculate the NAL (show all calculations).
2. Should the firm lease or borrow/buy,
3. Indicate which of the inputs into your NAL calculations would be the most sensitive to not materializing i.e., projections does not happen (elaborate)?