Lease or Buy Wolfson plc has decided to purchase a new machine that costs £4.2 million.
The machine will be depreciated on a 20 per cent reducing balance basis and will be
worth nothing at the end of four years. The corporate tax rate is 28 per cent. The Sur
Bank has offered Wolfson a four-year loan for £4.2 million. The repayment schedule is
four yearly principal repayments of £1.05 million and an interest charge of 9 per cent
on the outstanding balance of the loan at the beginning of each year. Both principal
repayments and interest are due at the end of each year. Cal Leasing Corporation offers
to lease the same machine to Wolfson. Lease payments of £1.2 million per year are due
at the beginning of each of the four years of the lease.
(a) Should Wolfson lease the machine or buy it with bank ﬁnancing?
(b) What is the annual lease payment that
Hi, In my previous answer, i missed to add one point which i have revised and added now. SO the current answer which i am... View the full answer