Micro-Technologies is a Bio Tech research firm that is conducting research on a cure

for Aids. Their sole current source of revenues is from the sale of research data that they

have collected about the virus (Ultimately, they are hoping to find an Aids vaccine that

will be worth billions, the research data they are selling is only being to finance

continuing research). The firm is considering the purchase of an electron microscope that

will cost $2,000,000, and have a useful life of five years. At the end of the five years, the

microscope will have an estimated salvage value of $500,000. If the firm purchases the

scope, there will also be an associated maintenance cost of $50,000 per year. One

possible alternative is to lease the equipment for the same period of time for $375,000 per

year, with all maintenance assumed by the lessor. For simplicity, treat lease payments as

if due at the end of the year.

If the before project EBIT is $500,000 per year, the borrowing rate (before-tax is

12%), and the tax rate is 30%, what should the firm do?