SynSerge Limited Has Decided to Acquire a Machine, Which Will

question 39

Multiple Choice

SynSerge Limited has decided to acquire a machine, which will replace an existing piece of equipment. The company has the choice between leasing the new machine or purchasing it. The existing machine is currently worth $30 000, while the new machine would cost $405 850. With the new machine installed, SynSerge would reduce its costs by $86 500 a year. The new machine would have a useful life of 10 years, qualify for a 10% Investment Tax Credit (ITC) and have a salvage value after ten years of $45 000. This type of machine qualifies for a 30% CCA rate. For a 10-year lease the annual payment is expected to be $42 000 with the first payment due upon signing the lease contract. SynSerge's cost of capital is 10%, tax rate is 30% and the cost of raising long-term debt is estimated at 12%. What is the Net Present Value of the lease? Round your final answer tothe nearest dollar.

• A) $55 817
• B) $65 352
• C) $47 227
• D) $63 109

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Definitions:

Classical Conditioning

A teaching technique involving the connection between a stimulus from the surroundings and one that happens naturally.

US Immediately Follows CS

In classical conditioning, the unconditioned stimulus consistently and immediately follows the conditioned stimulus, establishing an association.

Predictive Signal

An indication or sign that precedes and suggests the probable occurrence of a future event or outcome.

Surprise

An emotional and cognitive response to unexpected events or information.