7. Imagine you were hired to provide financial consulting for a firm that is contemplating whether to buy or lease a machine. The purchase would require an initial cash outflow of $5 million. The machine would then be depreciated straight-line to 0 over its 10-year useful life. It would be worthless at the end of this period. The firm would finance the expenditure using a secured loan with an interest rate of 5%. Alternatively, the firm could lease the equipment for $750,000 per year with payments due at the end of each year. Assuming a corporate tax rate of 20%, which of the following represents the most financially sound advice you can offer based on the net advantage to leasing (NAL) from the lessees perspective?

a. The firm should lease the machine because the NAL is $677,627.05 b. The firm should purchase the machine because the NAL is -$405,214.45 c. The firm should purchase the machine because the NAL is -$677,627.05 d. The firm should lease the machine because the NAL is -$677,627.05 e. The firm should lease the machine because the NAL is -$405,214.45