In: Finance
Your firm will either purchase or lease a new $500,000 packaging machine from the manufacturer. If purchased, the machine will be depreciated straight-line over five years. You can lease the machine using a true tax lease for $125,000 per year for five years with the first payment today. Assume the machine has no residual value, the secured borrowing rate is 9%, and the tax rate is 35%. Should you buy or lease?