Question: You want to install an automatic machine in the current assembly line and leasing is a very common practice for expensive automatic machines. The automatic

You want to install an automatic machine in the current assembly line and leasing is a very common practice for expensive automatic machines.

The automatic machine costs $4.3 million and it will be depreciated straight-line to zero over four years. Because of a high production volume, the automatic machine will be fully obsolete in four years.

You can lease the machine for $1.275 million per year for four years. Assume that the tax rate is 21%. You can borrow at 8% before taxes.

Should you lease or purchase the machine?

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