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Nike Sports is considering an installment of a new machines to be used over the next...

Nike Sports is considering an installment of a new machines to be used over the next five years. The company can either buy the machine for $725,000 today or lease it. The lease term would be five years and would require annual lease payments of $80,000, with lease payments made at the beginning of each 12-month period. Nike Sports would exercise an option to purchase the asset for $500,000 at the termination of the lease. If the discount rate is 3% and the tax rate is 25%, would you advise Nike Sports to buy or to lease the machine?

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Answer #1

Leasing is better option than purchasing.

Benefit = $7,25,000- $ 6,16,213 = $ 1,08,787

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