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Mattel, Inc. has decided to acquire a new equipment at a cost of $760,000. The equipment...

Mattel, Inc. has decided to acquire a new equipment at a cost of $760,000. The equipment has an expected life of 6 years and will be depreciated using 5-year MACRS with rates of .20, .32, .192, .1152, .1152, and .0576 (note that 5-year MACRS depreciation actually takes place over 6 years). There is no actual salvage value. Mass Financing has offered to lease the equipment to Mattel for $148,000 a year for 6 years. Mattel has a cost of equity of 10.8 percent, a pre-tax cost of debt of 6.5 percent, and a marginal tax rate of 25 percent. Should Mattel lease or buy?

Mattel should lease because NPV = $21,542.69

Mattel should lease because NPV = $27,630.06

Mattel should buy because NPV = $23,514.35

Mattel should buy because NPV = $28,375.29

Mattel should lease because NPV = $18,589.72

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