Bb Inc. is an automation service provider company that provides a cost-effective automated solution to the companies to streamline their production processes with a life of 6 years. Optimus Prime Corporation has been an old client of Automus and used a number of solutions provided by Automus in order to improve its business operation.

Another competitor Decepticon Inc. offers to Megatron that they can lease the automated solution In this way, there would not be any lump sum capital expenditure, and they would be able to control their finances as well while at the same time getting the maximum benefit from the facility.

Leasing: If the company goes with the lease option, the lease payment would be $73,000 for six years due at the beginning of the start of every year. Using this machine will save them $15,500 costs annually.

Buy: Although if the company goes with the Bumblebee solution and goes for buy option, that would be more cost-efficient for them as it will save them per year's costs of $27000.

They can raise this amount by bank financing of 410,000 to purchase it at 8.25% interest rate. The loan is payable in equal installments. (Hint: Use annuity concept for annual payment calculation) (Since the buy cannot happen without this debt, take into account debt repayments in calculating the cashflow of buy decision)

The accounting laws allow for straight-line depreciation of six years with zero salvage value.

The corporate tax rate is 32%, and the cost of capital is the same as the cost of debt.

1. What are the cash flows to the company if they go with Leasing option? 2. What are the cash flows to the company if they go with Buy option? 3. What are the Lease vs Buy Net cashflows? 4. What should be the decision? Lease or Buy?