Your company is currently replacing some of its aging stamping machines. Equipment can be purchased for $300,000; it has a useful life of 10 years and will be depreciated straight-line to zero. After 10 years it can be sold for $25,000. Another option for your company is to lease this Equipment at $36,000 per year. Your company can deduct lease payments as an operating expense when they are paid as this will be an operational lease. Your company borrowing rate is 8% and your tax rate is 25%. Should you lease or purchase equipment? Why?

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Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.