Green Valley Farms is considering either leasing or buying some new farm equipment, which is expected to generate $26,000 worth of sales every year in the next 3 years. The lessor will charge S23,000 a year lease. The purchase price is $57,000. The equipment has a 3-year life after which time it will be worthless. Green Valley Farms uses straight-line depreciation, pays zero taxes, and borrows money at 9 percent. What is the net advantage to leasing (ie, NPV for leasing over buying)? Should Green Valley Farms buy or lease the equipment?
Please show work stip by stip and the formula