EPC is willing to invest in a new automated machinery with a cost of $500000 and a lifetime of 5 years, as after the date, it will have to be replaced. The tax rate is 15% and EPC is considering whether to buy or lease the machine. They get an offer for leasing service with an annual lease price of $100000 to be paid at the beginning of the first year.

(a) What would you advise them to do?

(b) The alternative would be to invest in the asset by borrowing money from La Banca de Siena at an annual interest rate of 5%.

Explain the calculations and steps for (a) and (b). Steps in the calculation should be in bullet points.

Answer rating: 100% (QA)

a My advice would be for EPC to lease the machinery as it may be more financially beneficial for the... View the full answer