Assuming 0% taxes. Equipment can be leased at $18000 per year (first payment at end of year) for eight years or purchased at a cost of $110000. The company has a weighted average cost of capital of 9%. A bank has indicated that it would be willing to make the loan of $110000 at a cost of 6%. There is no salvage value. Should the company buy or lease? A none of them B Buy; PV of Buy option lower than Lease option C Lease; PV of Buy option lower than Lease option D Lease; PV of Lease option lower than Buy option E Buy; PV of Lease option lower than Buy option Now assume a marginal tax rate of 35% and that a loan can be obtained from the bank at a cost of 7%. Should the firm buy or lease? The PV of the depreciation expense is 90% of the original investment. Assume a 4.55% discount rate. 2 A Buy: PV of Lease option lower than Buy option B Buy; PV of Buy option lower than Lease option C none of them D Lease; PV of Buy option lower than Lease option E Lease; PV of Lease option lower than Buy option Referring to Q2. If the lease payments start at the beginning of the year, would your recommendation change? How? A Buy; PV of Buy option lower than Lease option B Lease; PV of Buy option lower than Lease option C none of them D Lease; PV of Lease option lower than Buy option E Buy; PV of Lease option lower than Buy option If a firm can buy a machine for $80000, takes an investment tax credit of 15%, and lease out the machine for 9 years with lease payments at the beginning of the year,how much should the minimum annual lease payments be? Assume a 5-year straight-line depreciation, zero salvage and a tax rate of 35%. Assume further that it can borrow at a before tax rate of 7%. 4 A $10,300 B $8,300 C $9,300 D $9,600 E $8,900