Solution-Option of leasing a machine

Option of leasing a machine

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Reference no: EM131373234

An industrial firm needs a $40,000 piece of machinery that has a useful life of 5 years. Knowing that the machine will have to be replaced every 5 years, the firm has the option of leasing a machine for $10,000 per year, or borrowing $40,000 to buy the machine. The 1st National Bank can provide a $40,000 loan at 7.8% compounded annually over 5 years. Over the 5-year life of the machine: is it cheaper to lease, or to borrow the money and buy the machine?

Reference no: EM131373234

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Option of leasing a machine

Reference no: EM131373234

Reference no: EM131373234

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