XYZ is contemplating either the outright purchase today or a lease of a major piece of machinery and wants you to recommend which would be preferable - lease or buy.  The following are the terms associated with each option:
Purchase Price Option = $1,000,000
Incremental Borrowing Rate = 5%
Estimated Life of Asset = 15 Years
Lease Payments = $90,000/year for 15 Years with $1 Purchase Option at end of lease.

Revenues = Estimated at $1,000,000 for the upcoming year and anticipated to grow by 5% per year with different marketing tactics will employ.

Expenses = $1,000,000 for the upcoming year and anticipated to decline to 95% of revenues each year thereafter as a result of the various cost efficiencies Struggle would put in place.

Answer rating: 100% (QA)

To determine whether XYZ should buy or lease the machinery we need to compare the net present value ... View the full answer