Paxton Sheet Metal Works Inc. is about to acquire a new stamping press that costs $400,000. It is considering purchasing the asset with money it can borrow at 10% repayable in annual, year-end installments over six years. It has also been offered an opportunity to lease the machine for payments of $86,500 per year, payable at year end, also over six years. The machine is depreciable for tax purposes over six years according to the following schedule.

Year Percent of Original Cost

1 .............20.0%

2 ..............32.0

3 ..............19.2

4 ...............11.5

5 ..............11.5

6 ................5.8

The lease contains a purchase option at its end at fair market value which is estimated to be $100,000. It also stipulates that Paxton will be responsible for paying for maintenance, taxes, and insurance. Paxton’s marginal tax rate is 30%. Conduct a lease-buy analysis to determine which option is preferable from a purely financial point of view.