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A construction company is considering whether to lease or buy some necessary equipment it needs for a project that will last the next 3 years.

A construction company is considering whether to lease or buy some necessary equipment it needs for a project that will last the next 3 years. If the firm buys the equipment, it will buy outright for $4.8 million. If it leases the equipment, the firm will make three equal end-of-year lease payments of $2,100,000. The firms tax rate is 40% and the firms before-tax cost of debt is 10%. Annual maintenance costs associated with ownership are estimated to be $240,000 and the equipment will be depreciated on a straight-line basis over 3 years. (Note: enter all costs as negative numbers)

1.Find the cost of leasing?

2.Find the cost of buying outright?

3.

This firm should ....

lease

buy

NA

NA

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