Now assume that you are the manager of a corporation and your rm is trying to decide whether to lease a machine for ve year sand pay the residual purchase costto buy the machine in the last year of the lease or buy the machine now.The annual lease payment would be $8,700 with payments made at the beginning of each year. The residual purchase cost would be $25,200 to be paid at the beginning of the fth year. The lease payments are standard business expenses that reduce the corporations tax liability accordingly. Your rm can borrow $89,300 from the bank to buy the machine now. Annual loan payments would be made for 5 years at a 5% interest rate. The machine can be fully depreciated in a straight line manner over 5years. Both the loan interest payment and the depreciation provide tax shields against a corporate tax rate of 40%. The appropriate discount rate for both alternatives is the after-tax cost of debt,where the corporations cost of debt is assumed to be the same as the loan rate. Should your corporation lease or buy?