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Big sky must pay for insurance-property taxes

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100% of the purchase price, or it can lease the machinery. Assume that the following facts apply:

1. The machinery falls into the MACRS 3-year class.

2. Under either the lease or purchase, Big Sky must pay for insurance, property taxes, and maintenance.

3. The firm's tax rate is 40%.

4. The loan would have an interest rate of 15%.

5. The lease terms call for $400,000 payments at the end of each of the 4 years.

6. Assume that Big Sky Mining has no use for the machine beyond the expiration of the lease. The lease has an estimated residual value of $250,000 at the end of the 4th year.

Reference no: EM131332259

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