2. (Refer to Example 7-10) A diesel generator for electrical power can be purchased for $480,000 and used for 10 years, when its salvage value is $50,000. Alternatively, it can be leased for $70,000 a year. The interest rate is 8%. (a) [10 points] To analysis the rate of return for buying versus leasing, we need to compute incremental cash flows. Show the incremental cash flows (use cash flow table or diagram). [Hint: Use higher initial-cost alternative (buying) to minus the lower initial-cost alternative (leasing). Remember that lease payments occur at the start of the year.] (b) [20 points] Based on the computed incremental cash flows in (a), determine the rate of return for buying versus leasing? (Hint: Use linear interpolation.) (0) [10 points] Which is the better choice? Buying or leasing? (d) [20 points] If a generator is used, there would be $80,000 less cost each year for fuel and maintenance, which currently spends on buying power. Use the best financing plan, which is the choice in (c). Should the generator be used? What is the rate of return for the generator? (Hint: The internal rate of return for the generator is not 8%. Find out the costs and benefits of using a generator, then apply return of return analysis. Use linear interpolation.)