Show whether firm should buy lease or maintain status quo

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Question: An automotive parts company is evaluating the purchase of an assembly process for $1, 250,000. It would be in service for 7 years and have a salvage value of $175,000. Alternatively, the same process line can be leased for $180,000 per year, which would have to be paid at the beginning of each year. The effective income tax rate for the company is 44.5% and the MACRS GDS 5-year depreciation method is used. Presently, the net before tax expense for the existing process is $340,000 at the end of each year. The before-tax MARR for the firm is 18%. Use the PW method to show whether the firm should buy lease or maintain the status quo.

Reference no: EM131789792

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