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Is better to lease or borrow and purchase the equipment

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ABC can lease a new computer data processing system for $975,000 per annum for 5 years. Alternatively, ABC can purchase the system for $4,250,000. Assume ABC's tax rate and borrowing costs are 38% and 9%, respectively, and that the system will become obsolete at the end of 5 years.

Problem 1: If ABC depreciates this equipment on a straight-line basis over the next 5 years, is it better to lease or borrow and purchase the equipment?

Reference no: EM132887280

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