On April $2,2024$ Tower Company purchased a machine for its leasing operations. The

machine has an estimated useful life of twelve years with a $$50,000$ residual value at that

time. On July $1,2025$ Tower leased the machine to Western Construction for seven years with

an annual payments beginning on July $1,2025.$ Tower used a $10\%$ interest rate when

determining the lease payment $($this rate is known to Western$).$ Tower estimated the market

value of the machine after seven years at $$200,000.$ The lease meets the present value test

and is considered a finance lease from Tower$$s perspective.

Western received Kaiser Credit Services$$ highest rating on February $28,2025.$ Western

had requested the evaluation as part of its preparation for a bond issue that it was developing.

On June $5,2025$ Western issued $$5$ million in $12\%$ bonds which were priced to yield an $11\%$

return to investors.

Because Western agreed to guarantee the residual value of $$200,000,$ the lease meets the

present value test from Western$$s perspective.

Required: $(10$ points$)$

Should Western have issued additional bonds and purchased the machine instead of acquiring

its use via the lease arrangement? Explain your reasoning.