ABC company is considering whether to lease or buy a machine. The machine will cost $20,000 and have a life of 3 years, at the end of which it will have no residual value. A loan for the purchase of the machine can be obtained for an annual interest rate of 7%, payable at the end of each of the 3 years. The machine can also be leased from an equipment hire company in return for an annual payment of $7625.00, payable at the end of each year.

Ignoring taxation factors, which option will be the lowest cost solution? What factors might you consider when making a decision?

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