Problem:
XYZ is trying to determine to lease or buy a new computer system. Tax rate is 35%and the cost of debt is 5.5%(after tax).
Lease-Annual beginning of the year payments of payments of 25,000 are required over 5 years. The lessor wil pay maintenance costs, the lessee will pay insurance and other cost. The lessee will exercise its option to purchase the asset for 32,000 in the final lease payment.
Purchase-The $100,000 cost can be financed entirely with 7.5% loan requiring end of year payments of 24,316 for five years. The MACRS five year recovering program will be used. The firm will pay $3500 per year for a service contract; the firm will pay insurance and other costs. The firm plans to keep the equipment beyond its 5 year life.
Should they lease or buy?
How would set this up in excel?