1. The Y Company is considering the purchase of a new machine for $25,000 that has a 3 year MACRS life (own for 2 years).The machine will require maintenance of $5000 per year for two years (payable at the beginning of the year) and will be sold at the end of the second year for $10,000.Or the company could lease the equipment for $15,000 per year for two years payable at the beginning of each year.If their cost of debt is 10% and tax rate is 25%.

Calculate the present value of costs for buying or leasing and choose which option the company should take.

1b. If the lessor has the same costs as above, except the lessor has a cost of debt of 6% and pays no taxes, calculate the NPV for the lessor.