Your company is considering either purchasing or leasing an asset which costs $1,000,000. The asset, if purchased, will be depreciated on a straight-line basis over 6 years to a zero residual value. A leasing company is willing to lease the asset for $300,000 per year: the first payment is due at the end of the first year of the lease. Your company has a tax rate Tc = 40% and can borrow at 10% from its bank. a. Should your company lease or purchase the asset? b. What is the maximum lease payment your company will agree to pay?
Please provide working.