Suppose a company wants to decide whether to lease or purchase an asset.

Purchase: The capital cost required to purchase the asset is $200,000 (at time zero) with a salvage value of $60,000 at the end of the 5th year. The purchased asset can be depreciated based on MACRS 5-year life depreciation with the half year convention (table A-1 at IRS (Links to an external site.)Links to an external site.) over six years (from year 0 to year 5).

Lease: The asset can be leased for 5 years (Operating Lease) and annual lease payments (LP) of $40,000 (from year 1 to year 5). The asset would yield the annual revenue of $85,000 for five years (from year 1 to year 5) and operating cost of $25,000 for year 1 to 5. Considering income tax of 40% and minimum ROR of 12%, calculate the ATCF and NPV for both alternatives and conclude which alternative is a better decision.