Lease or Buy Super Sonics Entertainment is considering buying a machine that costs NKr3,500,000. The machine will be depreciated using the 20 per cent reducing-balance method. At the end of five years it will be sold at its accounting residual value. The company can lease the machine with year-end payments of NKr942,000. The company can issue bonds at a 9 per cent interest rate. If the corporate tax rate is 28 per cent, should the company buy or lease?

Use the following information to solve Problems 19–21. The Wildcat Oil Company is trying to decide whether to lease or buy a new computer-assisted drilling system for its oil exploration business. Management has decided that it must use the system to stay competitive; it will provide £700,000 in annual pre-tax cost savings. The system costs £6 million and will be depreciated at 20 per cent reducing-balance method. At the end of five years, it will have no value. Wildcat’s tax rate is 28 per cent, and the firm can borrow at 9 per cent. Lambert Leasing Company has offered to lease the drilling equipment to Wildcat for payments of £1,400,000 per year. Lambert’s policy is to require its lessees to make payments at the start of the year.