On January 1, 1990 Company A purchases a machine for $50 million dollars. Company A estimates the useful life of the asset to be 25 years and assumes salvage value by the end of its useful life will be 10% of the original cost of the asset.

a. compute the depreciation expense (straight-line method) for the 25 years of the assets useful life. (Ignore the effect of income taxes)

b. How does depreciation expense change when you lease an asset instead of purchase it (the asset qualifies for a capital lease). Assume that the present value of future minimum lease payments is $50 million and that implicit interest rate is 12%. Also assume the length of the lease is the same as the estimated useful life of the asset.