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Super Sonics Entertainment is considering buying a machine that costs $435,000. The machine will be depreciated...

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Finance

Super Sonics Entertainment is considering buying a machine thatcosts $435,000. The machine will be depreciated over five years bythe straight-line method and will be worthless at that time. Thecompany can lease the machine with year-end payments of $107,500.The company can issue bonds at a 9 percent interest rate. If thecorporate tax rate is 35 percent, should the company buy orlease?

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4.1 Ratings (869 Votes)
Company should lease the machine Step1Calculation of present value of cash flow under leasing option Year After tax lease rental Lost depreciation tax shield Cash flow Discount    See Answer
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