Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It can obtain a bak loan for 100% of the purchase price, or it can lease the machinery. Assume the following facts apply:
a) The machinery fall s into the MACRS-3year class
b)Under either the lease or the purchase, Big Sky must pay for the insurance, property taxes and maintenance
c) The firm's tax rate is 40%
d) The loan would have an interest rate of 15%
e) The lease terms call for $400,00 payments at the end of each the next 4 years
f) Assume that Big Sky Mining has no use for the machine beyond expiration of the lease. The machine has an estimated residual value of $250,000 at the end of the year.