17-14. GMS Corporation is attempting to determine whether to lease or purchase research equipment. The firm is in the 40% tax bracket, and its after-tax cost of debt is currently 6%. The terms of the lease and the purchase are as follows. Scanned by CamScanner Chapter 17: Long-Term Debt and Leasing 581 Lease. Annual beginning-of-year lease payments of $93,500 are required over the 3-year life of the lease. The lessce will exercise its option to purchase the asset for $25,000, to be paid along with the final lease payment. Purchase. The $250,000 cost of the research equipment can be financed entirely with a 10% loan (pre-tax). The firm in this case will depreciate the equip- ment using the straight-line method for three years. The firm plans to keep the equipment and use it beyond its 3-year recovery period. a. Calculate the after-tax cash outflows associated with cach alternative. b. Calculate the present value of each cash outflow stream using the after-tax cost of debt. c. Which alternative-lease or purchase-Would you recommend? Why