High Graphics Solutions is a software solution company. The company’s existing data management software cannot accommodate the details of its clients and suppliers. The company is planning to expand its operations, and it is imperative to change the existing data management software. To increase the effectiveness of its data management systems, the company is planning to either lease or buy a data management software licence. If the company purchases the data management software licence, the software will be used for six years. The initial cost of the software will be £25,000. The company will also incur a developer cost of £15,000 at the time of the purchase. At the end of the six years, the software will have zero scrap value. The company will have cost savings of £6,000 every year. The revenue from the purchase of the software will be £8,000. Alternatively, if the company leases the same data management software licence for six years, the annual payment will be £22,500. The first annual payment will be due on delivery. The revenue from the lease will be £36,000. The company will not generate any annual savings by leasing the software. The annual maintenance cost of the software will be £4,000 regardless of whether it is purchased or leased. The company uses a discount rate of 10%. The company will be subject to a corporate tax rate of 25%.

Required

1. Determine the present value of after-tax cash flows arising from the purchase of the software at Year 0.

2. Calculate the net present values and determine whether High Graphics Solutions should purchase or lease the software.