Calci’s Cool Catamarans (3C) is deciding between buying or leasing a machine from Swain’s Supreme Sails (3S). The machine would cost 18 MM and have a 3-year useful life. After 3 years, the machine will be disposed of at a cost of $1,000,000. Maintenance expenses are projected to be $500,000 per year (payable at the end of the year). 3H offers to lease the machine to 3C for 7 MM per year, excluding maintenance expenses. This would be a capital lease, with the payments made at the end of the year. 3C can borrow at 7% and has a 20% tax rate. 3S can borrow at 10% and has a 25% tax rate. Should 3C buy or lease the machine?

Answer rating: 100% (QA)

To determine whether 3C should buy or lease the machine we need to compare the costs of buying and l... View the full answer