Assume that the lease payments of $10,000 start immediately and that they are paid at the end of each year. There are 10 payments. Compute the present value of leasing; compare the present value with that obtained for problem 5.

Data from problem 5

Now assume a marginal tax rate of 0.4 and that a loan can be obtained from the bank at a cost of 9 percent. Should the firm buy or lease? Using 0.054, the present value of depreciation is 0.811. Use 0.054 as the discount rate.