Homework answers / question archive / Fresno Machine Shop has decided to acquire a new machine that costs $3,000

Fresno Machine Shop has decided to acquire a new machine that costs $3,000

English

Share With

Fresno Machine Shop has decided to acquire a new machine that costs $3,000. The machine will be worthless after three years. Only straight-line depreciation is allowed by the IRS for this type of machine. ABC Leasing, Inc. offers to lease the same machine to Fresno under an operating lease. Annual lease payments are $1,200 per year and are due at the end of each of the three years. The market-wide borrowing rate is 8 percent for loans on assets such as this. Fresno’s marginal tax rate is 35 percent. Should Fresno lease the machine or buy it? Assume that Fresno would not borrow to purchase the machine.