Lease or Buy Wolfson Corporation has decided to purchase a new machine that costs $ 2 .
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Question:
Lease or Buy Wolfson Corporation has decided to purchase a new machine that costs $ million. The machine will be depreciated on a straightline basis and will be worth less after four years. The corporate tax rate is percent. The Sur Bank has offered Wolfson a fouryear loan for $ million. The repayment schedule is four yearly principal repayments of $ and an interest charge of percent on the outstanding balance of the loan at the beginning of each year. Both principal repayments and interest are due at the end of each year. Cal Leasing Corporation offers to lease the same machine to Wolfson. Lease payments of $ per year are due at the beginning of each of the four years of the lease.
a Should Wolfson lease the machine or buy it with bank financing?
b What is the annual lease payment that will make Wolfson indifferent to whether it
leases the machine or purchases it
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