Equipment can be leased at $13000 per year (first payment at beginning of year) for nine years or purchased at a cost of $90000. A bank has indicated that it would be willing to make the loan of $90000 at a cost of 7%. There is no salvage value. Should the company buy or lease? Now assume a marginal tax rate of 30% and that a loan can be obtained from the bank at a cost of 8%. Should the firm buy or lease? The PV of the depreciation expense is 85% of the original investment. Assume a 5.6% discount rate after tax.

none of them

Lease; PV of Lease option lower than Buy option

Buy; PV of Lease option lower than Buy option

Lease; PV of Buy option lower than Lease option

Buy; PV of Buy option lower than Lease option