22. A company is planning to move to a larger office and is trying to decide if the new office should be owned or leased. Cash flows for owning versus leasing are estimated as follows. Assume that the cash flows from operations will remain level over a 10-year holding period. If purchased, the company will invest $385,000 in equity and finance the remainder with an interest-only loan that has a balloon payment due in year 10. The after-tax cash flow from the sale of the property at the end of year 10 is expected to be $750,000. What is the incremental rate of return on equity to the company, if the property is owned instead of leased? (B)

Sales Cost of goods sold Gross income Operating expenses: Own 1,000,000 500,000 500,000 Lease 1,000,000 500,000 500,000 130,000 60,000 0 90,000 35,000 185,000 55,500 129,500 130,000 60,000 120,000 Business Real estate Lease payments Interest Depreciation Taxable income Tax Income after tax Plus: Depreciation After-tax cash flow 190,000 57,000 133,000 164,500