Echo Flash Toys is looking to purchase or lease new equipment to produce a new line of toys that the marketing department has assured management will be a big hit for the upcoming holiday season. The machine would cost $130,000 and has a useful economic life of five years with no salvage value at the end. Echo Flash Toys can borrow funds from a local bank at 10% and has a tax rate of 25%. The capital cost rate on this machine is 30%. Lease payments would begin at the end of each year, as would any tax savings. Lease payments would be $30,000 over the five-year term. Should Echo Flash lease or borrow funds to purchase this new machine?

Answer rating: 100% (QA)

Based on the information provided its more financially advantageous for Echo Flash Toys to purchase the machine rather than leasing it Heres a breakdo... View the full answer