(1) What is the present value of owning the equipment? (Hint: Set up a timeline that shows the net cash flows over the period t 5 0 to t 5 4, and then find the PV of these net cash flows, or the PV of owning.)

(2) What is the discount rate for the cash flows of owning?

c. What is Lewis's present value of leasing the equipment? (Hint: Again, construct a time line.)

d. What is the net advantage to leasing (NAL)? Does your analysis indicate that Lewis should buy or lease the equipment? Explain.

e. Now assume that the equipment's residual value could be as low as $0 or as high as $400,000, but $200,000 is the expected value. Because the residual value is riskier than the other relevant cash flows, this differential risk should be incorporated into the analysis. Describe how this could be accomplished. (No calculations are necessary, but explain how you would modify the analysis if calculations were required.) What effect would the residual value's increased uncertainty have on Lewis' lease versus-purchase decision?

f. The lessee compares the present value of owning the equipment with the present value of leasing it. Now put yourself in the lessor's shoes. In a few sentences, how should you analyze the decision to write or not to write the lease?

Expense Type Expense Cost

Equipment Cost $1,000,000

Equipment life expectancy (years) 6

MACRS Class (years) 3

Equipment residual value $200,000

Interest Rate 10%

Maintence contract (years) 4

Maintence contract costs $20,000

Federal & State tax rate 25%

Lease Option

Lease Payments (beginning of year) $260,000.00

Guideline lease (years) 4

I need help figuring out the calculations. Please use Excel and show calculations.