Baldwin Industries Limited Has Decided to Acquire a Machine, Which

Multiple Choice

Baldwin Industries 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 $26 000, while the new machine would cost $225 000. With thenew machine installed, Baldwin would reduce its costs by $72 300 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$30 000. This type of machine qualifies for a 30% CCA rate. For a 10-year lease the annual payment is expected to be $33 777 with the first payment due upon signing the lease contract. Baldwin's cost of capital is 12%, tax rate is 35% and the cost of raising long-term debt is estimated at 9%. What is the Net Present Value of the lease? Round your final answer to the nearest dollar.

A) $1 582
B) -$2 725
C) $2 694
D) -$1 033