Ah Cheng (AC) is considering a leasing arrangement to finance some special printing machines that it needs for production during the next three years.

A planned change in the companys production technology will make the new machine obsolete after 3 years. AC will depreciate the new machine on a straight-line basis towards zero salvage value. The firm can borrow the installed cost of $480,000, at 10% interest per annum, calculated on an annual reducing balance, to buy the new machine or make three equal beginning-of-year lease payments of $210,000 should it decide to take up lease financing.

Annual maintenance costs associated with ownership, payable at the end of year, are estimated at $25,000. Annual insurance premium associated with the purchase is estimated to be at $6,000, payment is on a cash-before-cover basis. Should AC opt for lease financing, all other costs will be borne by the lessor. AC tax rate is 40%.

What is the net advantage to leasing (NAL)? Which option should AC select, lease financing or purchase outright via bank borrowing?