Company Z has decided to buy a new machine that costs 5.1 million dollars which depreciates in a straight line and will be worthless after 4 years, the company's tax rate is 35%, bank S has offered to the company Z a 4-year $5.1 million loan The payment schedule includes 4 annual principal payments of $1,275,000 and a 9% interest charge on the outstanding loan balance at the beginning of each year. Both principal and interest payments must be made at the end of each year. Cal. Leasing offers to lease the same machine to Company Z with payments of $1.5 million per year due at the beginning of each of the four lease years.

a) should firm Z lease the machine or buy it with financing?

banking?

b) What is the annual lease payment with which it will be indifferent

for company Z to lease the machine or buy it?

e) Is it convenient for the lessee to lease the equipment?