Question: Jack Ltd is considering leasing a new machine. The lease term includes five annual payments of $210,000 with the first payment occurring when the lease

Jack Ltd is considering leasing a new machine. The lease term includes five annual payments of $210,000 with the first payment occurring when the lease is signed. The machine would cost $1 million to buy and would be depreciated to zero over five years on a straight-line basis. Jack Ltd can borrow at 10 percent and has a tax rate of 30 percent. What is the cash flow from leasing relative to buying in year zero?

a.

$790,000

b.

-$210,000

c.

$853,000

d.

-$147,000

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