The Smith & Jones Company is considering either the purchase or lease of a new machine details as follows:

Purchase Cost of new machine $97,000

Annual Maintenance Costs payable at start of year $10,000

Only payable if machine is purchased.

Machine Useful Life 5 years

Salvage Value at end of 5th year $8,000 (taxed at 30%)

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

Annual Lease Payment $29,200 payable at the start of the year

Term of lease 5 years

Cash savings associated with the acquisition of the machine are expected to be $50,000 per annum.

Other details:

Company's Cost of Capital 8%

Corporate Tax Rate 30%

Required:

Should the Company LEASE the Equipment? Please show the formular. Thanks