The British Petroleum Company (BP) is considering investing in a machine. The machine will cost £3,000,000 and will be depreciated using 20% reduced balance method. At the end of four years, the machine will have zero value. Alternatively, BP can lease it for £800,000 per year for four years. The lease payment is due at the end of each of the 4 years of the lease. Assume that the tax rate is 30% and BP can borrow at 7% before taxes. 

Decide whether BP should lease or buy?

Answer rating: 100% (QA)

To determine whether BP should lease or buy the machine we need to compare the present value of the cash flows associated with each option Lets calcul... View the full answer