Question
York finance plans to either purchase or lease a machine that costs $250,000 and is subject to a 20percent CCA rate using the declining balance
York finance plans to either purchase or lease a machine that costs $250,000 and is subject to a 20percent CCA rate using the declining balance method. The required lease payments are $30,000 for 4years and are paid at the beginning of the year. The maintenance of the equipment will be provided bythe lessor and included in the lease contract. York has estimated it would incur $20,000 per year inmaintenance expenses if it decides to purchase the machine. It is estimated that the machine could besold for its UCC after four years. The firms before tax borrowing rate is 8%, and its effective tax rate is40%. Should York purchase or lease the machine, assuming the acquisition of the machine has a positiveNPV and that the lease would qualify as an operating lease? The asset pool remains open and the halfyear rule is applicable.
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