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Wolfson Corporation has decided to purchase a new machine that costs $4.2 million. The machine will be worthless after 4 years.
Wolfson Corporation has decided to purchase a new machine that costs $4.2 million. Themachine will be worthless after 4 years. Only straight-line method is allowed by the IRSfor this type of machine.Wolfson is in the 35-percent tax bracket.The Sur Bank has offered Wolfson a three-year loan for $4.2 million.The repayment scheduleis three yearly principal repayments of $1.2 million and an interest charge of 9 percent onthe outstanding balance of the loan at the beginning of each year. 9 percent is themarketwide rate of interest. Both principal repayments and interest are due at the end ofeach year.Cal Leasing Corporation offers to lease the same machine to Wolfson. Lease payments of$1.2 million per year are due at the end of each of the 4 years of the lease.a. Should Wolfson lease the machine or buy it with bank financing?Show calculations
