Problem 1. Please note this is from the point of view of the lessee, the renter, not the owner. A Company is evaluating

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Problem 1.
Please note this is from the point of view of the
lessee, the renter, not the owner.
A Company is evaluating a potential lease for a computer system
with a 6-year life that costs $200,000 and falls into the MACRS
5-year class. If the firm borrows and buys the computer
system, the loan rate would be 9%. The computer system will be used
for 6 years, at the end of which time it will be sold at an
estimated residual value of $20,000. If the company buys the
computer system, it will purchase a maintenance contract that costs
$3,000 per year, payable at the end of each year. The lease
terms call for a $50,000 lease payment (6 payments total) at the
beginning of each year. The company's tax rate is 40%.
Should the firm lease or buy?
Note: MACRS rates for Years 1 to 6 are 0.20, 0.32, 0.19,
0.12, 0.11 and 0.06.