5.

US Corporation is planning to expand its current manufacturing facility. CFO is considering two options: US Corp may purchase needed equipment with cash today, for $1,000,000; alternatively, it can lease this same equipment for 5 years. Lease will require monthly payments of $20,000 (beginning of each month). If US Corps WACC is 6%, should CFO consider cash purchase or lease? (Ignore taxes, other costs associated with lease etc.)

6.

If CFO of US Corp decided to proceed with a cash purchase of this equipment, instead of the lease. Should US Corp use borrowed money (debt) or own resources (retained earnings) to finance this expansion? Name pros (at least 2) and cons (at least 2) of debt vs. equity financing.