General Studies · Lease vs Buy Decision
Ella Co. has decided to invest in a new machine which has a seven-year life span and no expected residual value. The machine can be purchased outright for $80,000 using an 8% loan. Alternatively, it can be leased for seven years by paying annual rental payments of $14,983 at the end of each year. Which of the following statements is correct?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The machine should be purchased because lease rental payments are higher than interest payments on the loan
- 2The machine should be leased because this option has a lower overall cost than purchasing outright✓
- 3Ella Co. should not agree to either form of financing because both will result in negative present values
- 4The machine should be purchased because this option has a lower overall cost than leasing
Correct answer
The machine should be leased because this option has a lower overall cost than purchasing outright
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