Assume you are faced with the following decision to lease or buy an asset. You...
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Accounting
Assume you are faced with the following decision to lease or buy an asset.
You can purchase a $250,000 piece of equipment by putting 10 % down and paying off the balance at 8 percent interest with 5 annual installments. The equipment will be used in your business for eight years, after which it can be sold for scrap for $25,000.
The alternative is that you can lease the same equipment for eight years at an annual rent of $100,000, the first payment of which is due one year after the start of the lease. You are responsible for the equipment's maintenance costs during the lease. Your cost of capital, discount rate, is 8%.
Should you lease or buy and why? Support your answer with all necessary calculations.
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