Question: A. Sadik Industries must install $1 million of new machinery in its Texas plant. It can obtain a bank loan for 100 percent of the required amount. Alternatively, a Texas investment banking firm that represents a group of investors believes that it can arrange for a lease financing plan. Assume that these facts apply:
(1) The equipment falls in the MACRS 3-year class.
(2) Estimated maintenance expenses are $50,000 per year.
(3) The firm's tax rate is 34 percent.
(4) If the money is borrowed, the bank loan will be at a rate of 14 percent, amortized in 3 equal installments at the end of each year.