An initial investment in an automated material handling machine of $100,000 will result in net cash inflows of $30,000 at the end of each year for four years. It will then have a market value of $20,000 at the end of the fourth year. The machine could be leased for $25,000 a year with the first payment due immediately.
a. If the organization does not pay income taxes and its MARR is 12%, show whether the organization should lease or purchase the equipment.
b. If the machine is thought to be worth only, say, $20,000 per year to the organization, which is the better economic decision?