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X company has be approached by the leasing company. They has offered the following terms on a 21,500 equipment.

Year 1 2 3 4 5 6 7

payment 4000 4000 3600 3600 3600 3600 3600

The operating saving from using this equipment will be 12,000 per year. IF X company buys the equipment it will be able to write it off to a residual of 500 over a 7 year period.Tax rate is 30%. Show costs and earnings in a form which would be used if X were to use discounted cash flow method of analyzing the lease vs purchase decisions. which should be their choice. Note: Will the differential investment yield a higher rate of return than the firm's cost of capital? If it is higher, purchase; if not, lease it.

Reference no: EM13929422

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