Response to the following problem:
Assume that Reynolds's tax rate is 40 percent and the equipment's depreciation would be $100 per year. If the company leased the asset on a 2-year lease, the payment would be $110 at the beginning of each year. If Reynolds borrowed and bought, the bank would charge 10 percent interest on the loan. In either case, the equipment is worth nothing after 2 years and will be discarded.
Should Reynolds lease or buy the equipment?