The lease of a computer system will cost $150 per month for a 2-year commitment. If the lease is renewed, it should cost less on each contract. The estimated price if renewed 2 years hence is $120 per month and $90 per month if renewed again in year 4. Buying the computer system will cost $7000, and it will be worth $1500 in year 6, which is the horizon for this problem.
In deciding between leasing and buying the computer, what is the incremental rate of return? If the MARR is a nominal 12%, should the computer be leased or purchased? What are the noneconomic factors, and are they likely to favor leasing or buying?