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Sirius has decided to acquire a new equipment at a cost of $748,000. The equipment has...

Sirius has decided to acquire a new equipment at a cost of $748,000. The equipment has an expected life of 6 years and will be depreciated using 5-year MACRS with rates of .20, .32, .192, .1152, .1152, and .0576 (note that 5-year MACRS depreciation actually takes place over 6 years). There is no actual salvage value. Travis Capital has offered to lease the equipment to Sirius for $153,000 a year for 6 years, with lease payment at the end of each year. Sirius has a cost of equity of 11 percent, a pre-tax cost of debt of 7 percent, and a marginal tax rate of 25 percent. Should Sirius lease or buy?

Sirius should lease because NPV = $10,247.88

Sirius should lease because NPV = $7,685.35

Sirius should buy because NPV = $1,915.62

Sirius should buy because NPV = $22,809.57

Sirius should lease because NPV = $31,669.29
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