Top Ltd. needs to acquire a piece of dredging equipment which will cost the company 65,000. It is estimated that in 18 years' time the machine can be salvaged for 7,500. The company's bank has agreed to lend the company the funds for the entire purchase price at 6 percent per annum payable in equal installments over the 18 years. Alternatively, the machine could be leased over 18 years from the manufacturer, by way of an operating lease with annual lease payments of 5,000. The company's tax rate is 25 percent, and its cost of capital is 10 percent. The equipment has a CCA rate of 20 percent. If the machine is owned, annual maintenance costs will be 600. Which alternative should the company choose, and what calculations support your recommendation?
