XYZ is considering whether to lease or buy a machine. The machine will cost £ 2000 and have a life of 3 years, at the end of which it will have no residual value. A loan for the purchase of the machine can be obtained for an annual interest rate of 7 per cent, payable at the end of each of the three years. The machine can also be leased from an equipment hire company in return for an annual payment of £ 762.50, payable at the end of each year.

Ignoring taxation factors, which option will be the lowest-cost solution? What factors might you consider when making a decision?