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Bright Chemicals Ltd is planning to manufacture a new product for the oil and gas industry. It is deciding whether to lease or buy a new machine, which can be bought outright using cash for $2 million. The firm’s policy is to depreciate this asset equally over its useful life of five years to zero, which can then be sold for $0.5 million. Alternatively, it can enter into a five-year lease, which will require an annual payment of $330,000. The firm cost of debt is 8%, WACC is 10% and has a tax rate of 20%. What is the NPV if it chooses to purchase the machine?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92420568

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