Question: A construction company is considering building a machine worth $ 200 million with an economic age of 4 years with two funding alternatives: (1) 100%

A construction company is considering building a machine worth $ 200 million with an economic age of 4 years with two funding alternatives: (1) 100% debt with 14% interest annually for 4 years; (2) leasing. The following data are known:

- The economic life of the asset is 4 years, and will be depreciated using the straight-line depreciation method

- Maintenance costs per year: $ 30 million

- 25% corporate tax

- Annual lease rent of $ 60 million

- Net residual value of $ 25 million

Calculate which alternative is more efficient?

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