Thomas Corporation is evaluating whether to lease or purchaseequipment. Its tax rate is 30%. The company expects to use theequipment for 5 years, with no expected salvage value. The purchaseprice is 1 million and MACRS depreciation, 30year class, willapply. If the company enters into a 5-year lease the lease paymentis $230,000 per year, payable at the beginning of each year. If the company purchases the equipment it will borrow from its bankat an interest rate of 11 percent.
Calculate the cost of purchasing the equipment.
Calculate the cost of leasing the equipment.