You are considering purchasing or leasing a machine for your company. If you purchase the machine the cost today is $40,000, its useful life is 5 years depreciated according to straight-line depreciation to a value of $20,000 at the end of its life. If you lease the machine there is a $5,000 deposit today, refunded in year 5, and the machine lease payment is $5,000 per year (and is not a tax deductible expense). The expected cost savings (revenue- operating expenses) for this machine is $10,000 per year whether you lease or buy. Your companys tax rate is 30% and the discount rate for projects of this type is 9%. (HINT: Find Yearly CF for years 1-4, todays CF year 0, and the terminal CF year 5 for both the lease and buy options)

a. According to NPV should you lease or purchase?

b. Create at two-way data table to see how the lease versus purchase decision changes as the lease payment and purchase price inputs change. Across the top, have lease payment go from $2,000 to $10,000 in $2,000 increments. Along the left, have purchase price go from $20,000 to $60,000 in $10,000 increments. The formula for the data table should be an if statement that displays purchase or lease based on the NPV.