Super Sonics Entertainment is considering borrowing money at 11 percent and purchasing a machine that costs $350,000. The machine will be depreciated over five years by the straight line method and will be worthless in five years. Super Sonics can lease the machine with the year end payments of $94,200. The corporate tax rate is 35 percent. Should Super Sonics buy or lease?
2. Maxwell, Inc., is entering negotiations for the lease of equipment that has a $200,000 purchase price. Maxwell’s effective tax rate is zero. Maxwell will be negotiating the lease with Mercer Leasing Corp. The term of the lease is five years. Mercer Leasing Corp. is in the 35 percent tax bracket. There are no transaction costs to the lease. Each firm can borrow at 10 percent. What is the negotiating range of the lease?