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Lease vs purchase of equipment

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Super Sonics Entertainment is considering borrowing money at 11 percent and purchasing a machine that costs $350,000. The machine will be depreciated over five years by the straightline method and will be worthless in five years. Super Sonics can lease the machine with the year-end payments of $94,200. The corporate tax rate is 35 percent. Should Super Sonics buy or lease?

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Solution Summary

The solution calculates the total costs of two options: lease versus purchase and draws a conclusion subject to the answers to a few questions.

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Problem: Super Sonics Entertainment is considering borrowing money at 11 percent and purchasing a machine that costs $350,000. The machine will be depreciated over five years by the straightline method and will be worthless in five years. Super Sonics can lease the machine with the year-end payments of $94,200. The corporate tax rate is 35 percent. Should Super Sonics buy or lease?

First I used an online calculator to determine the total amount of the ...

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