Reference no: EM132507321

Micro-Technologies is a Bio Tech research firm that is conducting research on a cure for Aids. Their sole current source of revenues is from the sale of research data that they have collected about the virus (Ultimately, they are hoping to find an Aids vaccine that will be worth billions, the research data they are selling is only being to finance continuing research). The firm is considering the purchase of an electron microscope that will cost $2,000,000, and have a useful life of five years. At the end of the five years, the microscope will have an estimated salvage value of $500,000. If the firm purchases the scope, there will also be an associated maintenance cost of $50,000 per year. One possible alternative is to lease the equipment for the same period of time for $375,000 per year, with all maintenance assumed by the lessor. For simplicity, treat lease payments as if due at the end of the year.

If the before project EBIT is $500,000 per year, the borrowing rate (before-tax is 12%), and the tax rate is 30%, what should the firm do?