Question
Tommy is the financial manager of Tree Corporation. He has been asked to conduct a lease-versus-purchase analysis on a new molding machine. THe machine costs
Tommy is the financial manager of Tree Corporation. He has been asked to conduct a lease-versus-purchase analysis on a new molding machine. THe machine costs $360,000 and will be depreciated by the straight line method over 5 years with zero residual value.
Alternatively, the company can lease the machine with year-end payments of $95,000 over 5 years from Apple Finance. The company's tax rate is 35% and its before-tax costs of borrowing is 10%.
Should the company lease or purchase the machine? Support your answer with detail computations. (8 marks)
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