NAL approach

NAL approach

ABC Co needs to acquire equipment at a cost of $2,500,000 {includes set up costs of $225,000 deemed to be
capitalized} belonging to Class 8 (CCA Rate 20%). The company’s financial institution has offered a borrowing rate (cost of borrowing) of Prime + 2% and the
co`s tax rate is 35%. The company can lease the equipment for $825,000 a year for four years where lease payments occur at the beginning of the contract. The
equipment has no salvage value and Prime is assumed to remain static at 6% over the life of the lease. The production manager’s salary for this project
is $65,000. Using the NAL approach, what advices would you provide as to the option the company should pursue?

 

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