The HTH Company is considering either purchase or lease of a new machine details as follows:

Purchase Cost of new machine $89,000

Annual Maintenance Costs payable at start of year $11,000

Only payable if machine is purchased.

Machine Useful Life 5 years

Salvage Value at end of 5th year $6,000 (taxed at 30%)

Taxation Rate 30%

Alternatively the machine can be leased with lease payments covering all capital and operating costs.

Annual Lease Payment $32,000 payable at the start of the year

Term of lease 5 years

The cash savings associated with the acquisition of the machine are the same irrespective of whether machine is leased or purchased.

Other details:

Company's Cost of Capital 11%

Corporate Tax Rate 30%

Required:

Should the Company LEASE the Equipment?